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M.A. (Oxon) ; LL.D. (Glasgow) ; F.R.S. ; Nobel Laureate 
in Chemistry, 1921 ; Author of " Science and Life " ; " Wealth, 
Virtual Wealth , and Debt " ; " Money versus Man " ; etc. 




J 934 






The Objective The Monetary System Obsolete 
The Community Standpoint Social Importance 
of Energetics Energy Theory of Wealth 
Ergosophy Wealth and Calories Marxism 
Obsolete Relation between Peoples and Govern- 
ments Physical Interpretation of History 
The Truth about " Materialism " The Physical 
Origin of " Progress " The Doctrine of 
Struggle Modern Wars and National Debts 
The Real Struggle The Taboo on Scientific 
Economics Wars and Revolutions result from 
Wealth The Monetary System impedes the 


WEALTH . . . . * V 24 
+ . *- ~ ** . 

""What is Money ? Barter and Barter-Currencies 
v Paper Money Bank-Credit The Private Issue 
of Money Monetary Policy What gives Value 
to Money ? Two Fundamental Monetary 
Principles Virtual Wealth The Community's 
Credit Credit money a Tax '* Backed " 
Money Money a Claim to what does not Exist 
The Price-Level Money from the Issuer's 
Standpoint Money not now a Tangible Token 
Changeover from Barter to Credit Money 
The False Step Why was it False ? The 
Profit^ ,,of *tfye,. Issue of Money Money In- 
destructible without! Expropriation. 


The Origin of the Cheque Government Regulation 
of Banking-VLending Cheque books Genuine 
and Fictitious Loans Current Account 



Deposits Why Cheque Money is preferred to 
Tokens The Gold-Standard The Correct 
Procedure The Credit or Trade CycleHow 
the Losses are Distributed Fraudulent Monetary 
Terminology The Gold Drain The Govern- 
ments Connivance The Cunliffe Committee 
Deflation The Abortive Return to Gold True- 
blue Treason The 1928 Act What is Genuine 
Money To-day ? 

IV. MONEY AS IT Now Is . .86 

Monetary Illusions A Distinction without a 
Difference The Vested Interest in Creating 
Money Open Market Operations Cash I 
Banks now Create Money for Themselves to 
SpeHa^The Banker as Tax-gatherer The Sprat 
to catch a Mackerel Banks give no Security 
Whatever The Time-element of Money The 
Circulation of Money The Value of Money or 
Price-level Some Monetary Factors A Grain 
Currency Economizing in the Use of Money 
now Fallacious Money Tokens or Book 
Credit ? Should Money-lending now be 
Permitted ? Physical Absurdity of Short-term 
Lending Current Accounts and Time- 
deposits How the Banker avoids His Own 

TIONS 116 

Bad Money Embroils the Nations International 
Banking Money at Call and Short Notice 
How the International Banker rules the World 
Money is National not International Debt 
Importers pay Exporters of their Own Nation 
The Balance of Trader-Effect of Loans and 
Repayments The Foreign Exchanges Gold- 
Standard drags all Nations down to Level of 
Lowest Effect of freeing Foreign Exchanges 
Correct Use of Gold. 


MONEY SYSTEM . / . . .135 

Money in the New Economics There is now no 
Shortage of Wealth Motive The Existing 



Wealth Consumption for Production and for 
Leisure Consumable and Capital Wealth 
Capital Debts not Repayable Energy Con- 
siderations Productive Capital not Distribut- 
able Capital under Communism and In- 
dividualism All Costs of Production are 
Distributed to Consumers Production for Con- 
sumers Production for Producers The 
Accumulation of Debts Solution of the Un- 
employment Problem Cost of Increasing Pro- 
duction not Repayable The Quantity of Money 
cannot be Calculated The Price Index- 
determines the Quantity of Money The 
Wasteful Costs of Distribution The Role of 
Money summarized. 


An Age of Power rather than of Machines Money 
Unrepayable National Debt Capital Debts 
Unrepayable " Saving " Conventional 
Necessity of Constant Price index How the 
Workers Would Benefit Regulation of Money 
by Price index A -simple Price index The 
Statistical Bureau A Reconstituted Mint 
Criticism of Proposals to Nationalize Banking 
Prevention Better than Cure Interest on 
Debts If Increment looking Forward, then 
Decrement looking Backward Paterson's Interest 
Law Discounting the Principal Gesell's Ideas of 
Making Money Itself Depreciate Objections 
The Possibility of Arbitrarily Lowering Interest 
Rates The Probable Effect in Increasing Capital 
Indebtedness Straightforward Debt Redemp- 
tion by Taxation. 


Is the New or the Old Economics Upside-down ? 
Abundance First, Apportionment Second The 
Attitude of the Public towards Costs Govern- 
ment Interference in Economics not Helpful 
A Progressive Evolution of Industry Monetary 
Reform First The Existing System on the 
Horns of a Dilemma The Economic Necessity of 
Frontiers Free Exchanges mean Free Trade 
Compromise hardly Feasible. 



POLICY ..... 

The Signs of a New Truth Monetary Reform 
Begins at Home The U.S. A. Plan Synopsis of 
the Principles of Reform Free the Exchanges 
The Real Universal Dictatorship Reculer 
pour mieux sauter Which is Lawful, to Create 
Money or Wealth? The British Way The 
Real Antagonist Envoi. 

BIBLIOGRAPHY . . . .221 


This book attempts to clear up the mystery of 
money in its social aspect. With the monetary 
system of the whole world in chaos, this mystery 
has never been so carefully fostered as it is to-day. 
And this is all the more curious inasmuch as 
there is not the slightest reason for this mystery. 
This book will show what money now is, what it 
does, and what it should do. From this will 
emerge the recognition of what has always been 
the true role of money. The standpoint from 
which most books on modern money are written 
has been reversed. In this book the subject is not 
treated from the point of view of the bankers 
as those are called who create by far the greater 
proportion of money but from that of the 
PUBLIC, who at present have to give up valuable 
goods and services to the bankers in return for 
the money that they have so cleverly created 
and create. This, surely, is what the public 
really wants to know about money. 

It was recognized in Athens and Sparta ten 
centuries before the birth of Christ that one 
of the most vital prerogatives of the State was 
the sole right to issue money. How curious that 
the unique quality of this prerogative is only now 
being re-discovered. The" money-power " which 



has been able to overshadow ostensibly responsible 
government, is not the power of the merely ultra- 
rich, but is nothing more nor less than a new 
technique designed to create and destroy money 
by adding and withdrawing figures in bank ledgers, 
without the slightest concern for the interests of 
the community or the real rdle that money ought 
to perform therein. 

The more profound students of money and, 
more recently, a very few historians have realized 
the enormous significance of this money power 
or technique, and its key position in shaping the 
course of world events through the ages. In this 
book the mode of approach and the philosophy 
of money is expounded in the light of a group of 
new doctrines, to which the name ergosophy is 
collectively given, which regard economics, 
sociology, and history with the eye of the engineer 
rather than with that of the humanist. It is con- 
cerned less with the details of particular schemes 
of monetary reform that have been advocated 
than with the general principles to which, in the 
author's opinion, every monetary system must at 
long last conform, if it is to fulfil its proper role 
as the distributive mechanism of society. To allow 
it to become a source of revenue to private issuers 
is to create, first, a secret and illicit arm of the 
government and, last, a rival power strong enough 
ultimately to overthrow all other forms of 




HPHE Objective. It is now some sixteen years 
* since the close of the great event that dis- 
played, for all to see, man and his would-be rulers 
and mentors powerless in the grip of the forces that 
their technologists had safely chained but that 
war had let loose. There is a distinct under- 
standing in the general consciousness '.that this 
generation is witnessing the veritable birth-throes 
of a new era dictated by the progress of physical 
science, rather than owing anything to those 
who have hitherto been most vocal in debate or 
most prominent in the attempted direction of 
affairs. There is a growing exasperation that an 
age so splendid and full of the noblest promise 
of generous life should be in such ill-informed 
and incompetent hands. 

The Monetary System Obsolete. Everywhere 
now there is the dawning consciousness among 
thoughtful minds that this age contains elements 
not understood or contained within the working 
rules of the older systems of government, 
economics, sociology, or even religion, and that it 


is due to new principles that have to be introduced 
into the base and can in no wise be met by a 
change in the superstructure of society. Even more 
remarkable, almost incredibly so to those who 
have been hitherto lost voices crying in the 
wilderness, is the swiftly growing volume of 
agreement that it is the obsolete and dangerous 
monetary system that, primarily, is at fault. It is 
this entirely empirical and defeatist body of 
rules and conventions, that has grown up along 
with the scientific expansion of the means of life, 
that is responsible not only for the present 
paralysis but also for the Great War itself. All 
are agreed that here at least change is inevitable, 
the only doubt indeed now being whether any 
part of the system, which through a lack of imagi- 
nation as to what might have been is still apt 
to be described as having " worked well in the 
past ", can survive into the future. 

The present book as dealing with the role 
of money cannot fail therefore to be of funda- 
mental importance, if it succeeds at all in filling 
its place in the New World Series, which is nothing 
less than to be a guide and a lamp to those whom 
fate shall select to be the new leaders of the great, 
though not of necessity violent, changes that 
are close upon us. When the War forced 
upon everybody's attention the grave dangers 
surrounding a scientific civilization through 
the very immensity of the destructive powers 
that science has put into the hands of nations 


still thinking only in terms of brute strength, 
the writer undertook an original examination 
into the real physical foundations of the con- 
ventions and half-truths that pass for economics, 
and particularly into those underlying the 
mechanism of distribution, which is, in a 
monetary civilization, the money system. His 
most significant conclusion, from which subse- 
quent events have given him no reason to recede, 
indeed it is now a truism was that nothing 
useful can be done unless and until a scientific 
money system takes the place of the one now 
always breaking down. 

The corollary, however, is never likely to be 
popular with our professional politicians at least. 
It was that, if such a thing were done, little else 
in the way of arbitrary interference with and 
government control over the essential activities 
of men in the pursuit of their livelihood would 
be required. Indeed, just as now not one in a 
thousand understands why the existing money 
system has such power to hurt him, so, if it were 
corrected as here outlined, not one in a thousand 
would need to know or, indeed, would know, 
except by the consequences, either that it had 
been rectified or how it had been rectified. For 
the aim of the present book is to show how the 
money system may be reduced to one of exactly 
the same character as that of our standard weights 
and measures. 

The Community Standpoint. It will be 


necessary to go more fully into the combination 
of circumstances which make these matters at 
once so vital to the social and economic health of 
the community and so completely outside the ways 
of thought that appertain to the individual and 
guide him in his own private affairs. Much of the 
difficulty is of course the deliberate use hitherto 
of common terms in senses entirely novel and 
often the opposite of those normally meant, as 
for example cash and credit. Much also is due 
to misconception as to what undoubtedly con- 
stitutes wealth to an individual, when not the 
individual but the community is in question. 
Because of this, the technical study of money 
calls in a peculiar way for powers of generalization, 
and often, indeed, the complete inversion of ideas 
as they appertain to the individual. These 
factors have unfortunately been completely absent 
not only from so-called monetary science but 
to an equal and even more important extent from 
the fundamental systems of orthodox economics 
to which monetary science belongs. 

Now, born of the troubled times in which 
we live, there has been growing up from a number 
of independent and at first sight quite unconnected 
roots a group of doctrines which may be broadly 
described as the application of the principles 
of the sciences of the material world, physics 
and chemistry, to economics and sociology. 
They have a common feature in that they are all 
due to the original thought of scientific men 


mainly engineers and physical scientists more 
interested in and accustomed to think in terms of 
physical realities than in those of social or legal con- 
ventions, and concerned hardly at all with the 
problems and controversies of individual or 
class economics, but with the significance of 
broad general and completely inescapable 
principles, in particular the principles of 
energetics, in regard to welfare of whole communi- 
ties as affected by the production and distribution 
of wealth. 

Social Importance of Energetics. In the 
author's opinion, at least, this new development 
promises to be of far more ultimate and permanent 
importance to the science of human welfare 
than the earlier incursion of biology in the last 
century which led to the doctrine of evolution. 
This is because it imposes a rigid framework 
of the fundamental physical laws, applying equally 
to men as to machines, in which there is really 
nothing controversial at all. The stock criticism 
of such a mode of approach into sociological 
questions would have been that men are not 
machines, and that in economics, as in its 
subdivision, money, psychological factors and 
considerations are at least of equal importance to, 
if indeed they are not of greater importance than, 
the purely physical factors. 

But that argument, unless it frankly postulates 
a belief in physical miracles in the power of 
the human mind to make, if it so will, 2+2=5 


whatever it may once have been, is now largely 
out of date through the extension of the exact 
sciences into these fields. There is not, never 
has been, and perhaps never will be any sort of 
equality at all in importance between the physical 
and psychological. In the sphere of distribution, 
for example, or of money as the distributory 
mechanism, all that psychology can do and 
the same is equally true of " banking " as it has 
become is to rob Peter to pay Paul. 

Energy Theory of Wealth. One of the main 
contributions of these doctrines is a consistent 
energy theory of wealth and the sharp distinction 
that results between wealth and the ownership 
of a debt. This reveals much that is incontro- 
vertible regarding the threatened collapse of the 
modern scientific civilization, to give it its proper 
name, though it is usually miscalled the 
capitalistic civilization. True, " Capital," in its 
proper physical sense, is its most distinctive 
superficial feature. But in that sense Capital is 
the unconsumable product of the irrevocable 
consumption or expenditure of wealth necessary 
to prepare for and make possible the new 
methods of production. Owing to modern methods 
of power production, much more of it is 
necessary than with the old methods. Moreover, 
it may be ^changeable for fresh wealth, but it 
is not changeable into it. From the community's 
standpoint capital appears as debt rather than 


Orthodox economics has never yet been any- 
thing but the class economics of the owners of 
debts. If its writers ever attempted any wider 
social applications, they made themselves simply 
ridiculous, as when one solemnly looked forward 
to the millennium arriving through the accumula- 
tion of so much capital that everyone would be 
well off and comfortable, presumably by living 
on the interest of their mutual indebtednesses. 
Whilst in the sphere of international trade, till 
long after the War, the dictum that a continued 
favourable balance of trade w r as essential for 
the existence of the strong nations implied the 
continuation of unfavourable balances for the 
weak. It was stated that this country was 
threatened with disaster unless it contrived to 
maintain the previous rate of foreign investments 
returning abroad all that it received in the way 
of interest and sinking funds in respect of past 
investments, and if possible more than this. 
These are good illustrations of the debt-view 
of wealth and the substitution of social and legal 
conventions for physical reality. 

Ergosophy. It is convenient to give a name 
to the group of interconnected but more or less 
independent doctrines comprised under such 
terms as Cartesian, Physical or New Economics, 
Social Energetics, the Age of Plenty, and Techno- 
cracy, including the implications of these doctrines, 
in regard to the problems of distribution and the 
new philosophy of money, with which this book 


is more particularly concerned. A new word 
Ergosophy will be employed for this purpose. 
It means the wisdom of work, energy, or power, 
in the purely physical sense. Mental or intellectual 
activities, to which these three terms are often 
loosely applied, are better referred to, rather, as 
effort, diligence, or attention. 

There are many reasons that render such a 
new word or term desirable. So far there has 
been no real social philosophy arising wholly 
out of the universally obeyed laws of the physical 
world. On the other hand, from the remotest 
times, technology has been too apt to be con- 
sidered merely a sort of slave or menial servant 
to verbose, pretentious, and impressionistic 
humane philosophies and religions. Indeed it 
would hardly be a caricature of civilization, as 
it has evolved up to now, to describe it as having 
been attempting to compound for the injustice 
of ascribing unto God the things that are of 
Science by rendering unto Caesar the things that 
are of God. Technocracy, in one at least of its 
sources of inspiration, the suggestion of Thorstein 
Veblen for the establishment of a Soviet of 
technicians to take over the control of the world, 
is probably one of the first collective dawnings 
of this malversation. So long as we have simple 
folk displaying a pathetic acquiescence in the 
piety that renders thanks for all the good things 
of life and ascribes them to the bounty of Provi- 
dence, along with anything but simple folk who 


totally disbelieve anything of the kind but 
nevertheless do still believe implicitly in practising 
much more forceful methods of obtaining them, 
so long will civilization be a happy hunting 
ground for the predatory and acquisitive and a 
wilderness for the original and creative. The new 
philosophy, by claiming for mechanical science its 
rightful position as an equal in the trinity of 
wisdom, should make it easier to render unto 
Caesar the things that are of Caesar and to God 
the things that are of God. 

Wealth and Calories. In the first place 
ergosophy rehabilitates with a precise meaning 
that old-fashioned and indispensable word Wealth, 
which the orthodox economist, knowing even 
less of the alleged subject-matter of his studies 
than the original founders of the subject, the 
French Physiocrats, took too much for granted. 
Originating, to him, ultimately somehow through 
divine agency, he came to regard the acquisition 
of wealth as tantamount to its creation. He 
became obsessed with commerce and mercantile 
exchange to the neglect of the technical principles 
underlying all new production of wealth. To this 
day we are in the grip of a mercantile system that 
fritters away in distribution most of the advantage 
gained in lightening the labour of producing 
wealth. Involved in a mass of obvious incon- 
sistencies, he seemed to resent the use of the 
term wealth at all by those unlearned in his 
sophistications. Even the orthodox are to-day 


exceedingly sparing in the use of the word. The 
discussion that has lately been greatly in evidence 
in the papers as to the income necessary to 
purchase, among other things, sufficient food 
to support a family in health and work possesses 
a significance that may perhaps have been missed. 
The whole question centred round the number of 
calories of energy contained in the food itself, 
this to be proved, if necessary, by burning it in 
a calorimeter. This is economics, even if it is 
not yet recognized as such. 

Marxism Obsolete. It ought never to be 
forgotten that Victorian economics was essentially 
class economics, in which only gradually and 
tardily the actual producers of wealth as distinct 
from employers and property owners were 
considered at all. But we find things worse and 
not better among the accepted doctrines of left- 
wing and revolutionary movements. With a 
clearer recognition of the social implications of 
energy our political controversies appear mainly 
as due to economic confusions. In an age when 
men are more and more being displaced from 
their function as physical labourers by purely 
inanimate sources of power, and are in danger 
of being largely by-passed out of the cycle of 
production and distribution by automatic 
mechanisms, it would be incredible, if it were 
not true, that so large a part of the world should 
be misrepresented as dominated by the doctrines 
of Karl Marx as to wealth originating in human 


labour. Every artisan must know that this is 
not now true. The views of Marx on money 
were even more out of date, relatively to his age, 
than his views on wealth, and it was significant 
in the evidence before the Macmillan Committee 
that Marxists seem to have been the last to 
abandon their primitive belief in gold as a currency 
medium and in the gold standard. 

Relations between Peoples and Governments. 
If, as appears to be happening, these obsolete 
ideas and the doctrinaires who exploit them are 
rapidly losing their hold on the public, and if an 
increasing body of people of all shades of political 
opinion are wakening to the more fundamental 
revolutions rendered inescapable by the progress 
of science, it is possible to anticipate for this 
and other countries not yet overtaken by revolu- 
tion a very different and more reasonable, if 
more prosaic, course of events. For it is no 
progress, having absolved the Deity from the 
function of universal provider, to set up the 
Government in His place. Veblen was much 
nearer the reality in substituting the technologist. 
In the economic affairs of the nation, at least, it 
would seem no bad thing if the ordinary practical 
rules of business were followed, success and 
honesty being encouraged by promotion, and 
incompetence and corruption entailing dismissal 
much as with any other paid officials. 

Physical Interpretation of History. Nor does 
history seem able to escape from much the same 


charge as economics. If, in other revolutions, 
we study not the actions and loudly proclaimed 
motives of the contending parties but rather 
the permanent and abiding fruits of the struggle, 
there appears little if any resemblance. Historians 
seem open to the charge of recording rather what 
ought to have been happening according to their 
one-sided philosophic preconceptions, than what 
really happened. Actually, the successive political 
factions appear to have gone on effectually 
cancelling each other out until, by a process of 
elimination, the new factors in the world which 
permitted and, indeed, enforced a more satisfying 
and intelligent mode of living were given freer 
play. Then, and then only, the ferment subsided. 
This, at least, is the interpretation of history 
by Sydney A. Reeve, an American engineer who 
has for thirty years been devoting himself to the 
study of the great historic wars and revolutions 
of the past, from the standpoint of Social 
Energetics. His conclusion that these terrible 
and devastating explosions could have been 
avoided, and can in the future be prevented, is, 
obviously, of prime importance in the present 
state of the world. Human aspirations towards 
progress may be taken for granted. Even in 
total eclipse they are not dead, but only latent. 
But whether they can achieve realization rather 
than mere passive or active revolt, doomed in 
advance to futility, is in the end a question of 
the physical resources rather than the psychical 


attitudes of men. Without an abundance, all 
the more essential because of the destruction 
these outbursts entail, the most valiant and heroic 
strivings are vain. 

The Truth about " Materialism ".This may 
sound like sordid and unrelieved materialism, 
and may have an ominous ring in the ears of 
many. Yet nothing but ignorance or worse could 
make it appear so. It is better to listen to those 
who have made the desert blossom as the rose 
rather than to those who have made fair fields a 
slime of mud and blood ; to those who have fetched 
from the stars the cornucopia that suckled Jupiter 
instead of those who empty it in the rivers and 
the fire for fear of glut ; to those who would 
let light and air into warrens and fight social 
disease with food and warmth rather than drugs 
and doles ; who wait to loose into life the mount- 
ing tide of wealth rather than watch it burst 
its dams and leap again to the work of destruction 
and death. Rather is it not terrible that men who 
can do all these things are reckoned the mere 
hirelings of miscalled humanists and idealists, 
and are not supposed to be concerned whether 
they are hired to create or destroy-! Even the 
mules of the United States, we read, when the 
boll-weevils, specially imported for the purpose, 
failed to destroy the cotton crop to prevent 
" overproduction ", refused to tread back into 
the earth the growing plants. Whereas men, 
with resources at their disposal ample to build 


up a civilization of a magnificence and liberality 
the world has never known, are now at their wit's 
end to invent new forms of destruction and waste 
lest this new civilization should displace the old. 

The Physical Origin of " Progress ". Some may 
see in ergosophy nothing but economic determin- 
ism pushed to extremes. True, calories are 
king all right in the sense that nothing whatever 
can happen without sufficient expenditure of 
them, a condition upon which humanists usually 
find it convenient not to dwell. But this sort 
of determinism the new doctrine deduces to laws 
which do not arise from life at all, though all life 
obeys them. That this is not or at least was 
not merely trite and self-evident is clear from 
the views of Marx, to whom the doctrine of 
economic determinism is so largely ascribed, 
as to the origin of wealth. If he had left out from 
his definition of wealth the word " human ", 
and had said that wealth had originated in labour, 
in the sense the physicist uses the word for work 
or energy, he would have anticipated modern 
views. Instead, he referred to the original founder 
of this, perhaps the greatest of all scientific 
generalizations, as " an American humbug, the 
baronized Yankee, Benjamin Thompson, alias 
Count Rumford ". 

But though now this be little more than a 
truism, there is something much more positive 
in these doctrines than the mere barring out or 
subordination of human and religious factors 


from the ultimate arbitrament of the fate of 
communities. So far as the individual goes there 
appears perfect free-will to utilize or not the 
opportunities afforded by invention and discovery 
in order to lighten the labour and multiply the 
rewards of livelihood. But this free-will by no 
means extends to his ability permanently to 
prevent others from so doing. Reeve's theory 
of wars and revolutions is that they arise from 
just this attempt, which is always ultimately 
unsuccessful and disastrous. Whatever you may 
choose to label the new view, it implies clearly 
that human progress is predestined from below, 
even if not initiated from above. At the best 
men may be led on to higher modes of life, but 
at the worst they are impelled from the rear. 
But it leaves, as outside its province, the actual 
form and nature of human progress to the other 
members of the trinity, the biological and psychical 
content of the age that may be in existence at 
the time. 

The Doctrine of Struggle. Unpleasant and 
shattering to many cherished illusions as this 
may seem, it is, nevertheless, the key that best 
fits our age, and none know it better than those 
who have tried to spread the new evangel. As an 
Australian writer recently well put it there 
are many who cling to (for others not themselves) 
poverty, insecurity, hard work, scanty living, 
wars, starvation, and disease, as blessings in 
disguise, necessary to goad and subdue this lazy 


and unruly animal, man, and to protect him from 
softness and decadence. This is the doctrine of 
existence for struggle, rather than of struggle 
for existence, and it is probably the oldest doctrine 
in the world. It stinks of the East not the West. 
If it is regarded as " biological necessity ", the 
physical imperative is even more categorical. 
For in struggle man can not now exist he can 
only destroy himself and be destroyed. Surely 
it is rather crude biology, seeing that from its 
earliest inception life has been doing little else 
than dodge physical imperatives, to suppose that 
man should at this epoch of his evolution suddenly 
reverse his instincts and, of necessity, knock out 
his brains against them. In truth, these ideas 
have, as the Australian writer was careful to 
point out, only a vicarious application, and the 
biological necessity of death for the individual 
is still the greatest insurance for the survival of 
the species. The problem is, rather, educational 
for the race to learn effectively to protect itself 
against those who, learned mainly in the history 
of the bygone bow and arrow ages, would use the 
titanic weapons of science for race annihilation. 

Men, it is true, in those ages may have been 
goaded on by starvation to successful robbery 
and theft of their neighbours, but, in this power- 
age, progress has been due to the conquest of 
nature and the by-passing of men. Whatever 
may be the ultimate genie effect of the Great 
War, it is generally admitted that the French 


Revolution and the Napoleonic Wars have percep- 
tibly reduced the average physique of the French 
nation, and that now wars, since superior courage 
and valour are much more likely to lead to swift 
personal annihilation than ultimate survival, are 
definitely and necessarily dysgenic. While on the 
positive side, where courage and stamina are 
essential to survival, in exploration of land, sea, 
and sky, and in trying out and taming still 
imperfectly understood new processes and 
appliances to the use of men, science has provided 
and is providing both opportunities and unavoid- 
able necessities for facing and overcoming dangers 
that would have blenched the cheek of the 
legendary heroes of olden time. The fault, if 
any, is rather with our poets for not suitably 
immortalizing such achievements, but in that 
field no one doubts the immense superiority of 
the ancients over us, who in so many other respects 
have very little to learn from them. 

Modern Wars and National Debts. In point 
of fact, again, are wars now merely for sustenance ? 
Are they not waged to secure markets wherein 
to dispose of the surplus wealth arising from 
scientific production operating along with the 
old practical law of wages ? (By " practical law 
of wages " is meant the system that ensures 
to the worker just sufficient to maintain him in 
a mental and physical condition to allow of his 
efficient conduct of his trade, craft, or avocation. 
This is, of course, a direct inheritance of the age 


of scarcity.) To put it quite bluntly, the purpose 
of wars is to compel weaker nations to take this 
surplus off the hands of the stronger, running up 
debts, if need be, in order to pay for it. Then, 
the threat of further war is necessary to ensure 
that the debts and the interest on them shall 
not be repudiated. 

The Real Struggles. The struggle for existence 
is now revealed as fundamentally a struggle for 
physical energy, and the conquest of nature has 
made available supplies vastly exceeding what 
can be extracted from the unwilling bodies of 
draught cattle and slaves. It is not the struggle 
but the energy that is essential to human life. 
The doctrine of existence for struggle, on the 
other hand, is the oldest religion in the world. 

It has never been anything but a religion of 
the ambitious, dominating, and unscrupulous, 
with either a race or a caste arrogation of superiority 
over the races without or the herd within, an 
assumption of licence to act treacherously and 
injuriously towards aliens and those it deems 
of inferior breed and to confine its standards 
of honour and decency to those of its own blood 
or order. It is a code that Christianity has actively 
and passively resisted for two thousand years. 
That fact is not unimportant. For between the 
progress that has culminated in ergosophy and 
the Christian religion there is an intimate connec- 
tion. Indeed the former is in origin wholly the 
product of the Christian nations of the West. 


The Taboo on Scientific Economics. After the 
War, a cry went up for scientific men to co- 
operate with the financial, industrial, and political 
authorities in solving the social evils that brought 
on the War and which have since made Peace 
nothing but a misnomer. But the strange and 
unconventional conclusions of the few who had 
brought to social problems the same searching 
and original thought that they were accustomed 
to apply in their own inquiries, frightened, not 
the public, but those whose interest in such 
problems is to keep them reconciled with things 
as they are. Those who persisted in shedding 
light on social evils and anomalies were deemed 
impious, and the conclusions tabooed. But it is 
the merest folly to suppose that in these days 
any sweeping generalization that clarifies existing 
great issues can be suppressed. Now that there 
are signs that the Age of Plenty school of monetary 
reformers is winning, and that the conspiracy 
of silence on the part of the " respectable " 
Press has failed, we may assess the cost. Fifteen 
years of golden opportunity have been wasted, 
the time having been devoted instead to the 
exacerbation of the disease. Policies, which 
now everyone knows were the exact opposite of 
those required by the facts, such as economizing, or 
producing more and consuming less, have worked 
themselves out to their inevitable results. The 
public is expected to believe that the misfortunes 
that beset us are acts of God and that, though 


we have the science and the necessary equipment 
and organization to produce wealth in abundance, 
it is beyond the wit of man to learn how to 
distribute it. The problem, it is true, is new, and 
the approach to it obscured, often intentionally, 
by a mass of half-truths and once-truths. But 
its solution has not been rendered any nearer 
or clearer by the puerile effort of the post-War 
era to suppress free public discussion of the new 
doctrines, an issue that was fought out and won 
in physical science in the time of Galileo. 

Wars and Revolutions Result from Wealth. The 
reader will no doubt be able to supply for himself 
many striking confirmations of the theory that 
wars and revolution result not from poverty and 
misery but from the growth of wealth and the 
futile attempt to resist its distribution. But two 
striking ones that occur to the author may be here 
cited. The first is as to the immediate and 
incidental causes that precipitated the first 
Kerensky Revolution in Russia. We were told 
by intelligent and unbiassed Russians at the time 
that it was neither starvation and poverty nor 
the horrors of defeat in war but two exhibitions 
of official incompetence so gross as to outrage 
the deepest feelings of Russia. The one was the 
mass conscription of the peasants long before there 
were arms or barracks for a small fraction of them, 
whereby a large proportion died from the pesti- 
lential conditions engendered. Even from a purely 
military standpoint they would have been far 


better left at work on their fields. The other was 
the loss of practically the whole of one season's 
crop of one of the chief grain districts of South 
Russia during transference from barges to the 
rail-head through its being dumped at a spot 
universally known as being liable to sudden 
autumn floods. 

The second illustration is of more than 
incidental purport. Olive Schreiner in the 
introduction to her book Woman and Labour 
tells how she came to regard it as almost axiomatic 
that " the women of no race or class will ever 
revolt or attempt to bring about a revolutionary 
adjustment of their relation to their society, 
however intense their suffering and however 
clear their perception of it, while the welfare 
and persistence of their society requires their 
submission ". They do so, in brief, when the 
changed conditions make acquiescence no longer 
necessary or desirable. 

It is not suffering but unnecessary suffering 
and misery that is the goad of human progress. 
Precedent to the latter is the material progress 
in the inventions and arts that give men power 
over their environment, and happy indeed is 
the age in which precedent also, and keeping pace 
with the expansion of wealth, is progress in the 
moral and spiritual sphere. For then we get not 
revolution but renaissance. So in our day it is 
not the agitator fomenting class-hatred who can 
start, nor the airmen raining down bombs that 


can stop, a revolution. But empty milk into the 
Potomac ; import pests to destroy the cotton 
crop ; burn wheat and coffee as fuel ; restrict 
the production of rubber ; set up tariff-barriers ; 
permit trusts, federations, cartels, and lock-outs ; 
allow trade unions to develop ca'canny methods 
to reduce output ; maintain in misery, insecurity, 
and idleness masses of unemployed who are not 
allowed to better their lot by making the very 
things of which they stand in need ; and revolu- 
tion in some form is not probable, but certain. 
The ideas that govern men are outraged. Instead 
of a few striking illustrations of incompetence or 
worse they begin to see universal chaos instead 
of order. Their institutions, so far from pro- 
tecting them in their peaceful avocations on 
which they rely for their livelihood, appear 
leagued together to keep them in traditional 
and unnecessary servitude and dependence. The 
army begins to realize that it is officered by the 

The Monetary System Impedes the Flow. 
Nor will any means avail to terminate or defeat 
such a revolution, whether it is sudden or long- 
drawn-out, violent or chronic, unless and until 
the barriers that oppose the free and full 
distribution of wealth from the producer to the 
ultimate user and consumer are broken down and 
the flow of wealth again fulfils the purpose for 
which men have striven to create it. Since, in 
all monetary civilizations, it is money that alone 


can effect the exchange of wealth and the con- 
tinuous flow of goods and services throughout the 
nation, money has become the life-blood of 
the community, and for each individual a veritable 
licence to live at all. The monetary system is the 
distributory mechanism, and this reading of 
history therefore supports up to the hilt the con- 
clusions of those who have made a special study 
of what our monetary system has become. It is 
the primary and infinitely most important source 
of all our present social and international unrest 
and for the failure, hitherto, of democracy. 

A very slight knowledge of our actual existing 
monetary system makes it abundantly clear that, 
without democracy knowing or allowing it, and 
without the matter ever being before the electorate 
even as a secondary or minor political issue, the 
power of uttering money has been taken out of 
national hands and usurped as a perquisite by 
the moneylender. Practically every genuine 
monetary reformer is unanimous that the only 
hope of safety and peace lies in the nation 
instantly resuming its prerogative over the issue 
of all forms of money, which, legally, it has never 
surrendered at all. 



JI7HAT is Money ? Let us commence our 
W study of the role of money by a compre- 
hensive definition of what modern money is. 

Money now is the NOTHING you get for SOMETHING 
before you can get ANYTHING. 

Our task is to understand all that this implies. 
The definition is, of course, an economic one 
referring to ordinary transactions such as earning, 
buying, and selling among ordinary folk generous 
uncles and other voluntary benefactors not being 
under contemplation and the nothing, something, 
and anything of the definition refer to things of 
real value in themselves, usually termed goods and 
services, or simply wealth, unless hair-splitting 
or purely technical distinctions turning on the 
precise definition of wealth are involved. More- 
over, it refers to ordinary people, in the sense of 
those who neither have the opportunity nor the 
power of uttering money themselves. 

As a matter of fact, this definition not only 
answers comprehensively what money now is 
but answers perfectly satisfactorily all that money 
has always been, whether it has been coin or 



paper or any other form. From the point of view 
of the owner or possessor of it, money is the credit 
he has established in his favour with the com- 
munity in which it passes current or is " legal 
tender ", by having given up in the past valuable 
goods and services for nothing, so as to obtain 
at his own convenience, in the future, equivalent 
value in turn for nothing. It is merely an ingenious 
device to secure payment in advance, and in 
a monetary civilization the owners of money are 
those who have paid in advance for definite 
market values of buyable goods and services, 
without as yet having received them. 

There is nothing mysterious about all this. 
What has been termed " the moral mystery of 
credit ", meaning credit-money, might just as 
well be termed the immoral mystery of debt. 
For there is no credit without debt any more than 
there is height without depth, East without 
West, or heat without cold. The two are related, 
and although it takes only one to own wealth 
it takes two to own a debt, because for every 
oVraer there is an ower. Money, of course, is an 
entirely peculiar form of the credit-debt relation, 
if only because whereas all other forms are entirely 
optional, the creditor at any rate being a free 
agent to enter into this relation or not, money is 
a credit-debt relation from which none can 
effectually escape. 

Let us right from the start get the signs right. 
The owner of money is the creditor and the issuer 


of it is the debtor, for the owner of money gives 
up goods and services to the issuer. In an honest 
money system the issuer of money who gets 
for nothing goods and services would do so on 
trust for the benefit of the community. In 
a fraudulent money system he does so for the 
benefit of himself. It makes no difference whether 
he passes off the money and puts it into circulation 
himself or lends it at interest for others to pass off 
for him. In every case what he so gets to spend or 
lend is given up by someone else. Ex nihilo nihil 
fit. Nothing comes from nothing, or, in modern 
phraseology, matter and energy are conserved. 

Barter and Barter-Currencies. The invention 
of money marks a distinct step upwards in civiliza- 
tion. In barter the owner of one sort of property 
gives it up to another in exchange for another 
sort of equivalent worth. Money was able to 
replace barter not because it enabled people to 
obtain other peoples' property without giving 
anything up, but because they had in a former 
and independent transaction already given it up. 
All the shades of distinction which money in the 
course of its evolution has passed through, from 
barter to pure credit (or debt), concern not the 
something initially given up for it, which is the 
one essential to all its forms. They concern 
merely what is received in exchange for it. This 
may vary from the full value in the form of a gold 
coin to an intrinsically worthless paper receipt, 
and nowadays not even that. For a variety of 


alleged reasons, such as the necessity to make 
money circulate freely, which we need not now 
take very seriously, it has been held to be 
necessary, at least in certain stages of the evolution 
of money, to give back to the giver-up of the some- 
thing the full equivalent value in gold or other 
precious metal. If this equivalent were in the form 
of a certain weight of gold dust, or for that matter 
any other equally convenient exchangeable 
merchandise, we have merely a case of barter 
pure and simple, save only for the distinction 
that, in all probability, the recipient of the metal 
usually had no use for it himself and accepted 
it merely as a recognized temporary or inter- 
mediate form of payment. But when the practice 
of coining money arose, and coins were issued of 
definite weight and fineness stamped with some 
design, such as the king's head, indicative of 
the authority under which they were legalized 
as money, not only was a great step forward 
taken, as, for example, in convenience of reckoning 
without requiring the use of scales, but quite 
definitely the material of which the coin was made 
was thereby rendered useless to the owner, so 
long as the coin was not melted down. Within 
this limitation, that is so long as the coin remains 
intact, this type of money no less than modern 
credit or debt money, involved the giving up of 
something really for nothing, unless a miser's 
pleasure in gloating over his hoard be considered 
an economic value. Also it was quite customary 


to make it as treasonable an offence to deface 
the ruler's effigy or otherwise interfere with the 
intactness of a coin as to utter a counterfeit 
imitation. Though this may have been intended 
to prevent clipping, sweating, and the like, it 
gave the force of law to what is here taken to be 
the common essential criterion of all money, the 
voluntary forgoing of something of use or value 
to the owner without any equivalent return. 

Paper Money. In the case of a paper note, 
it is still exactly what it was when it originated, 
a printed receipt for something given up for 
nothing. In the case of the original British bank- 
notes it was at once the receipt of the bank issuing 
it for the equivalent of gold, voluntarily given up 
by the owner on loan or for safe keeping, and its 
promise to repay it on demand. Hence the origin 
of the legend Promise to Pay on our present notes. 
In their use as money the gold coin and paper 
note are on a par, the only difference being that 
the latter has no other possible function, whereas 
the former by being destroyed as money can 
revert to effective use as a commodity. We are 
here approaching two different considerations 
which are often confused, one, what gives money 
a definite exchange value, and the other, how that 
exchange value may be kept from changing, and 
how the owner may be safeguarded from loss 
should it be debased in value. 

A gold or silver currency of full value is 
protected from being debased in value because 


it can be melted down, whether legally or not, 
and the bullion bartered for value equivalent to 
that given up for the money in the first place. 
Whereas any " unbacked " paper money is 
essentially a receipt merely or I.O.U. and, if it 
is debased in exchange value, the owner has no 
redress. It has been habitual for the professional 
money interests persistently to denigrate paper 
money, to keep alive the memory of every misuse 
of the printing press (which after all does give 
a tangible receipt to the owner for what he has 
given up), and to preach the virtues of gold 
whilst practising themselves an alchemy that did 
not even require the printing press. But to an 
unbiassed judge nothing could possibly be as 
bad as the system which grew up and flourished 
after it became physically impossible to increase 
the supply of gold sufficiently rapidly to keep pace 
with the expansion of industry, so that a substitute 
for it as money had to be found. 

" Bank-Credit" The ruinous continuous fall 
in price-level, so familiar to-day, is derived in the 
normal way from the checks imposed on the 
natural expansion of currency, required to keep 
pace with the increase of wealth in an era of 
expanding prosperity. The semblance of gold 
was preserved, but the system was really a gilded 
fraud. There grew out of a miserable " backing " 
of gold (at first with, but ultimately without, the 
aid of any paper, or the issue of any receipt at all 
to the owner for what he had given up) a vast 


superstructure of physically non-existing money 
created by " bank-credit ". We may postpone 
the nearer consideration of the technique till 
later. If printed receipts to the owners had been 
issued, the issue would have put into the shade 
the worst pre-War historical examples of the abuse 
of the printing press in times of political unrest 
and difficulty. It is not the issue of proper receipts 
that ought to be attacked, but the getting for 
nothing by the issue of money of more than the 
public are able to give up for it. If printing 
receipts, instead of giving gold for what the 
owner of money gives up for money, is an 
immoral practice, how much more immoral it is 
not even to give receipts ! How utterly hypocritical 
it is to proceed against the counterfeiter of a 
forged note, who gives a false receipt, for treason 
rather than theft, and strictly to limit by Act of 
Parliament the amounts which the banks are 
allowed to obtain from the public for nothing by 
the issue of tangible receipts, while allowing them 
to extract for their own profit incomparable 
vaster amounts so long as they do not acknow- 
ledge the receipt at all ! 

The Private Issue of Money. By allowing 
private mints to spring up Parliament has 
fundamentally and perhaps irretrievably betrayed 
democracy. Before the War shed a penetrating 
light into the nature of money systems in general 
it was customary even in the works of apparently 
respectable economists to find absolutely dishonest 


hair-splitting distinctions between the invisible 
money so created and paper notes. The latter 
were really money and the former was not ! 
In fact, the reader can always tell in such standard 
works on the subject when he is approaching the 
fishy part of the business. The essential fact, 
the creation of new money, becomes obscured 
in a cloud of anticipatory justification and elaborate 
special pleading. This is no longer even possible, 
and one may be thankful to find nowadays some 
technical writers on this malodorous subject who 
are content to state the facts unequivocably and 
to leave the reader to draw his own conclusion. 

True, the old credit system " based on gold " 
kept the currency from being progressively and 
permanently debased relatively to the exchange 
value of gold by forcibly bringing it back again 
after it had been debased by compounding for 
the robbing of Peter to pay Paul by the subsequent 
ruination of Paul to pay the bank. Simple, and in 
many ways good, as real gold and silver currencies 
are, they involve a vast amount of futile human 
effort in the search for the precious metals, which 
are then instantly rendered unavailing for any 
legitimate aesthetic or industrial application. But 
it is mere pretence to ascribe such solid 
advantages, as they may have, to modern systems 
pretending to be based on them, but really using 
them brutally to restore the value to money after 
it has been diluted, to the hurt of the innocent 
and profit of the guilty. 


For over a century there simply has not been 
nearly enough gold and silver in the world for the 
requirements of a pure barter-currency. As regards 
actual present conditions in this country and else- 
where, since the final breakdown of the " gold- 
standard ", we are now committed to an almost 
pure credit-debt money, but instead of any definite 
standard we have entered upon a stage of 
" monetary policy " in which the price-level is 
modified deliberately from time to time by 
irresponsible judges according to what they 
conceive to be " policy ", and without the slightest 
regard to the elementary principles of justice 
and fair dealing to those who own money, and 
that is to everyone in common, who have given 
up equivalent value for it. 

Monetary Policy. Monetary policy would be 
better described as " weights and measures 
policy ", for it is simply a universal means of 
juggling with the standards of weight and measure- 
ment. No one outside of metrical science is 
really interested in the absolute value of the latter. 
The economic use of them is purely relative to 
money how many pounds of coal to the , how 
many pence for a pint of beer. Making the buy 
less or more of pounds or pints is the same in all 
economic affairs as making the pound and the pint 
weigh and measure less or more than before. It 
substitutes for false scales and measuring vessels 
universal and inescapable swindling mechanism. 

We are living in an age rendered great by the 


precise sciences and it is idle to try and link our 
money still to the old semi-idolatrous lure of 
gold and silver. Books could be and have been 
written for and against the system of linking 
the exchange value of commodities to the one 
commodity, gold, without even attempting to 
answer the real question of what it is that does 
give money its exchange value. It is true that 
simple barter-currencies can keep money constant 
in value relatively to gold or silver. But that by 
itself has no meaning, unless an answer can be 
found for the question, what fixes the value of 
these relatively rare metals, almost completely 
confined in use to luxury purposes, in terms of the 
things universally necessary for life to continue 
at all ? That there is a question to be answered 
is obvious when we deal with pure paper and 
credit forms of money, and it is almost as obvious 
that the answer can only be found in what is here 
taken as the essential feature of money in general, 
since it is the only feature this form of money 
exhibits. One has to give up just as much for a 
paper i as for a golden sovereign. There is no 
difference in the two kinds of money in this aspect, 
and so it is this aspect which is the common 
criterion of all forms of money. 

What Gives Value to Money. Its exchange 
value depends, in fact, simply on the amount of 
wealth people voluntarily prefer to go without 
rather than to possess. The value of money 
depends to be sure on how much people want 


money, but the prevailing loose and confusing 
meaning attaching to any such phrase as " people 
wanting money " makes it necessary to add 
"instead of wealth". Again, " demand for money," 
" abundance or scarcity of money," " price of 
money," and so on, are technical expressions of 
the loan market. In genuine loan transactions 
of any kind the lender gives up the credit that is 
money to another who expends it in his stead, 
and in national economics it is not the individual 
who spends it but the fact of it being spent that 
is of importance. Since people do not borrow 
money and pay interest on it merely to hoard it, 
genuine lending and spending in this connection 
are synonymous. Whereas what determines the 
value of money is the amount of wealth people 
prefer to go without ; and that is the same as the 
amount of credit they retain as money. 

All the common phraseology of money stresses 
only the something you get for it by getting rid of 
it, rather than the prior consideration of what you 
give up by acquiring and retaining it. From the 
first standpoint peoples' demands for it are 
insatiable ; from the second it would be truer 
to say, misers excepted, that people keep as little 
of it as is safe. They want as much on the average 
as will enable them to conduct their avocations 
and domestic affairs without inconvenience and 
embarrassment. They want enough to buy what 
they can afford to buy as they need it. If they have 
more than this they spend or invest it. In either 


case they put on somebody else the onus of going 
without the things it will buy. It is highly 
important to recognize at once that investing is in 
this connection spending just as much as lending 
is and for the same reason. The reader must 
remember that in this inquiry the ordinary 
attitude of the individual to money is assumed to 
be perfectly understood, and it is not this aspect 
but rather the communal aspect of money that is 
being investigated. 

Two Fundamental Monetary Principles. There 
are two considerations here that are of importance. 
The first is that buying, selling, investing, genuine 
lending, and borrowing, have no effect what- 
ever on the quantity of money and that is the 
quantity of wealth the community goes without 
since what one person gets or gives up another 
gives up or gets. Somebody, that is to say, has 
to own all of the money all of the time, and go 
without the substance for the shadow. Much as 
individuals may appear to be free to exercise 
their choice, they are free only in so far as the 
requirements of others may be the opposite or 
complement of their own. If, among the com- 
munity, buying is more in evidence than selling, 
the price-level rises and the value of the money 
unit falls. If selling predominates over buying, 
the opposite occurs. Assuming that the quantity 
of money does not change, the first means that 
the community chooses to give up less goods 
and service than when the price-level does not 


change ; and the second that it chooses to give 
up more. 

The second point of importance is that, though 
individuals die and their affairs are wound up, 
communities go on indefinitely. So that in a money 
system we are really not contemplating any 
temporary voluntary forgoing of something for 
nothing to suit the individual's preferences and 
convenience, but, on the part of the community, 
an enforced abstinence from use and ownership 
of buyable goods and services equal in aggregate 
price or value to the aggregate quantity of money 
in the community. 

Virtual Wealth. This aggregate of exchange- 
able goods and services which the community 
continuously and permanently goes without 
(though individual money owners can instantly 
demand and obtain it from other individuals) 
the author terms the Virtual Wealth of the 
community. It fixes the value of the aggregate 
of money whatever the latter may be. The value 
of each unity of money, such as the , in goods, 
or what is termed the " price-index " or " price- 
level ", is thus the Virtual Wealth divided by 
the total aggregate of money. The latter in a 
credit-money system may be anything whatever, 
but the former is definite and is dictated by 
the necessity of people retaining sufficient 
instantaneously exercisable credit for goods and 
services to enable them to get what they want as 
they want it. They may have a great variety of 


other forms of credit goods, services, jewellery, 
investments, real estate, and property but in 
a monetary civilization, as distinct from one 
practising barter, these all have first to be sold to 
a buyer, that is exchanged for the credit that is 
money, before people can get what they want as 
they want it. In this, selling services for money is, 
of course, more usually termed earning (wages, 
salary, fees, commissions, and so on). 

The Community's Credit. What is here called 
by the special name Virtual Wealth is often 
intended by monetary reformers when the much 
wider and more general term, credit of the public 
or of the nation, is employed. In reality Virtual 
Wealth is a special and peculiar part of the credit 
of the nation. The credit of a nation may be, 
and for the most part is, in no way different from 
that of individuals, in the ordinary sense of their 
ability to run into debt. Thus the relation that 
governs the ordinary national debt is the same as 
if it were owed amongst individuals. The nation 
has drawn on or expended its credit to the extent 
of seven or eight thousand million pounds by 
borrowing these sums from individual citizens 
on various terms as regards interest payments and 
repayment, if ever, in the future, and these 
individuals own debts for the sums of money 
which they have empowered the Government to 
spend in their stead. They hand over their 
money and the Government buys itself goods 
and services. 


The Virtual Wealth, on the other hand, is the 
credit established by individuals with the nation, 
through which, in the first place, the inter- 
mediate form of payment, money, comes into 
existence. It is established by goods and services 
being handed over directly to the issuer of money, 
repayable as such not from the issuer (unless 
issued by the nation) but from the community 
on demand, the debt not bearing interest to the 
creditor, so long as he retains the credit and right 
of instant repayment. Interest, obviously, can 
be exacted from debts only repayable, if at all, 
on some future date, and not on those which the 
owner can be repaid at any time but chooses 
to postpone payment. 

Credit Money a Tax. But, from the standpoint 
of the community, credit money is simply a form 
of forced levy or tax impossible to resist, the 
aggregate of such creditors having no option in 
the matter, as in other forms of the debt-credit 
relation. Anyone issuing money, whether the 
State, bank, or counterfeiter, makes a forced levy 
on the goods and services of the nation which the 
existing creditors, in their capacity as money- 
owners, give up through the corresponding 
reduction in the value of each unit of their money. 
When taxation, or other form of expropriation of 
the property of the individuals by the State, 
has yielded all that the latter can be compelled 
to surrender, the last resort of the tax-gatherer 
and it is completely inescapable is the issue of 


new money, and it can be continued until the 
whole of the money is reduced to relative worth- 
lessness. In this way, of course, after the War 
the defeated nations, Russia, Germany, and 
Austria, raised revenue when no other means 
were possible, and at the same time repudiated 
all pre-existing debts so far as they were repayable 
in money. 

Many, no doubt, until they get familiar with it, 
will question the use or necessity of this con- 
ception of Virtual Wealth, and hold that it does 
not really explain the value of money. To 
individuals it may seem a quaint and sophisticated 
inversion of common usage. Rather it is the first 
step towards reversing the inversion induced 
in peoples' habits of thought by regarding money 
as the primary definite and important factor, and 
the wealth it will buy as a consequence or inherent 
property of money. It is the wealth all people 
must involuntarily give up and go without that is 
the primary factor that endows money with the 
power of buying at all. If all refused to go without 
anything for money and claimed all the wealth 
to which they are legally entitled in exchange for it, 
there would only be buyers but no sellers, and no 
wealth whatever to satisfy even a single one of 
them. In so far as the money may incorporate 
or be " backed " by a valuable material, which 
can be recovered by destroying it as money, there 
is this much to satisfy them, but in so far as it 
is pure credit money there is absolutely nothing. 


" Backed " Money. If we consider an inter- 
mediate form such as a paper money " backed " 
by a deposit of some type of legal securities, then 
behind the one kind of debt, money, there is 
another kind of debt which the existing owner 
may be legally compelled to surrender. This may 
than be exchangeable for the wealth the owner 
needs much in the same way as, but less simply 
than, by money. But in this case it would still 
be true to say that the wealth which the owner 
of money has given up, and is owed for, does not 
exist. For the securities " behind " this sort of 
money are already in the, possession of owners, 
and the process is merely the enforced expro- 
priation of their property in recovery of a 
repudiated debt. In Ruskin's words it is " the 
root and rule of all economy that what one person 
has another cannot have ", and the worst blunders 
of the ordinary conventional economist will be 
found to have arisen from the attempt somehow 
to count twice over property with two owners, 
where, as in this case, the rights of the one begin 
only when those of the other end. 

Money a Claim to What Does not Exist. The 
essential feature of money is, as McLeod fully 
understood, that it is a legal claim to wealth over 
and above the wealth in existence, all of which in 
an individualistic society is already in the owner- 
ship of others independently of this claim. Even 
in the case of a gold coinage bearing the imprint 
of the nation or its ruler it is quite customary and 


nearer the truth to regard the gold as the property 
of the nation or ruler rather than of the individual 
owner of the coin. So that, without any real 
exception, we reach the conclusion that over and 
above all the existing property, all of which has 
owners already, the owners of money possess 
claims to what they have given up, but what they 
have given up does not actually exist. The best 
physical analogy to this is to regard the wealth 
of a community as reckoned not from the zero 
of " no wealth ", but from a negative datum line 
below it by the amount of the Virtual Wealth, 
just as for purposes of special surveys it may be 
convenient to reckon the level not from average 
sea-level as customary, but from some level 
below it, as, for instance, the lowest tidal-level. 
There is no real mystery about money, as there is 
about psychic phenomena, but merely a sort of 
spurious mathematical mysticism introduced by 
the invention for the purpose of calculation of 
imaginary negative quantities which are quite 
legitimate if the nature of the convention is under- 
stood. Unfortunately it is not. 

The Price-Level. For all practical purposes 
the Virtual Wealth at every instant is " measured " 
(in money value !) by the aggregate of money. If 
the latter is a thousand millions the community 
are voluntarily refraining from possessing 
a thousand millions' worth of property which 
they have the right to own and do not. Nowadays 
the quantity of money does not stay put. It is 


varying wildly from minute to minute of the 
working day. From one year to another it may be 
arbitrarily varied within the year by hundreds of 
millions to suit some " policy " designed to 
increase or decrease the value of the unit. It is 
not, however, the Virtual Wealth that changes. 
That is a very conservative quantity indeed, as it 
is dictated by the people's necessities and habits, 
which they alone can change. But the Virtual 
Wealth being always divided up into a larger or 
smaller number of units, the price-level or value 
of each unit varies proportionally with the 
aggregate of money, considered as one in- 
dependently operating factor. On the other hand, 
normally in these days of continuous expansion, 
over long enough periods there is and should 
be a steady gradual appreciation in the value of 
the Virtual Wealth, both on account of increase 
of population and on account of the rise of the 
standards of living. If this is not kept pace with 
under a credit-money system by the issue of 
correspondingly more money, we have the 
paralysis brought on by a continuously falling 
price-level and the ruination of producers in the 
interest of the rentier. 

But, as will appear later, it is absolutely 
essential for the purpose that it should be issued 
freely as a gift to the nation, which gives up 
gratuitously the goods and services it is worth, 
and then only after the increase of prosperity 
has occurred when goods without money to buy 


them are actually awaiting sale. If, as in the past, 
it is issued as a debt to the banks for producers 
to buy goods and services to sink in new 
production, in addition to making the issuer of 
money the uncrowned king, it cannot be issued 
without raising the price-level. The general 
commonsense proof of the latter consequence 
is that you do not by mere tricks of accountancy, 
involving imaginary negative quantities, affect 
by one iota the physical processes by which new 
wealth is created, but only those by which the 
incidence of the distribution of the existing 
wealth among its various claimants and owners 
is effected. It is amazing, but nevertheless quite 
in keeping with the age that is passing away, 
that till quite recently it was common to ascribe 
to " the moral mystery of credit " and the peculiar 
virtues of the British banking system the expansion 
of wealth that was due to the growth of knowledge. 
Thus the " orthodox " fell into the very same 
error that they were, and are, so fond of ascribing 
to other, especially monetary, reformers, namely 
the absurdity of thinking that all could get rich 
by means of the printing press and by " tinkering 
with the currency ". 

Money from the Issuer's Standpoint. So far 
we have been dealing with money as a public 
instrument replacing barter and have traced the 
essence of the invention to its enabling those, 
with goods and services to dispose of, to give them 
up freely for nothing with a more or less certain 


assurance that, and as a quid pro quo, they thereby 
became empowered in turn to receive goods and 
services on the same terms from others as they 
need them. Now we have to look at the money 
from the point of view of those who have hitherto 
expounded it, to whom money is the something 
for nothing before anyone can get anything, as it 
is to those who issue it in the first instance. To 
these fortunate people the criterion as to what is 
and what is not really money appeared to depend 
on fine degrees of general acceptability. Usually 
an imaginary line was drawn between the bank- 
note and the cheque on the ground that though 
both were in reality demands on the bank for 
money (which in this country is now no longer 
even true of the first), yet the bank-note had by 
custom become generally acceptable, whoever 
presented it, while the cheque was so only if 
tendered by the person to whom it was drawn 
or other person authorized by him. 

All of this, from the standpoint of the public 
who use money for its legitimate purpose and 
spend the greater part of their lives striving that 
they may not be left without it, is pure sophistry, 
while on the academic side the analysis is entirely 
superficial. Since the War, it is refreshing to 
notice that even the orthodox admit, however 
much may be said for regarding the cheque as 
not really money, that there can be no dispute 
that the deposits at the bank on which the cheque 
is drawable, and which have come into existence 


as the result of the invention of the cheque 
system, are most certainly money. Thanks, no 
doubt, in part to the existence of monetary 
reformers and the ridicule they have poured on 
these shibboleths which are or were the stock-in- 
trade of their opponents, but, even more, to the 
almost incredible blunders and confusions 
perpetrated since the War in the name of " sound 
finance ", the general public is to-day too wide 
awake to the diametrically opposite interests of 
those who live by creating and destroying money, 
and of those who have to acquire it as a licence to 
live at all, to be hoodwinked any longer by such 

Money not now a Tangible Token. The 
distinction between what has a physical and 
tangible existence, like coins and notes, and what 
has not, like bank deposits, is a highly sinister 
and dangerous one, but it is not a distinction 
between what is money and what is not. A legal 
right of action against a bank to supply money 
on demand is to the owner of it as effective as 
money itself and usually more convenient. It is 
of no great significance that the bank is able 
to cancel, by the cheque system, the bulk of the 
cheques drawn on it against those paid into it, 
so as to dispense with tangible money altogether 
except for the difference between the two amounts. 
This merely substitutes for an automatic system 
of accounting by physical counters a clerical 
book-keeping system which is fraudulent because 


it does not start reckoning from zero but from 
some continuously varying negative value. 

Money is a right of action against the com- 
munity to supply goods and services or, what is the 
same thing, to discharge the debt incurred through 
obtaining them from the vendor, so that a right 
of action against a bank to supply money on 
demand is a right of action against the com- 
munity to supply goods and services on demand. 
Every ordinary person, of course, knows that 
money is a claim to goods and it is of no practical 
importance if, in theory, he has to claim that claim 
from a bank before he can claim the goods. One 
might as lief argue that a bicycle left in a cloak- 
room was not a bicycle but a right of action against 
the railway company to supply a bicycle. The 
highly sinister and dangerous distinction refers 
not to the aspect usually stressed, nor to that so 
far stressed in this chapter, but rather to the origin 
of the money and, if it is destroyed, to its 

The definition of modern money with which we 
started makes clear that before it can come into 
existence some one has to give up something for 
nothing to the issuer of it in the first instance, 
and the aggregate the community so gives up is 
called the Virtual Wealth of the community. 
Dealing with a gold or silver money of full value 
the issuer has also to give up full value for the 
money, but he renders it, while used as money, 
merely a token otherwise useless, with the result 


that all the effort expended in the winning of the 
precious metals used as money is effectually 
wasted. But in the issue of every other form of 
money the issuer must get the something gratis. 

Change-over from Barter to Credit-Money. 
It is easy to see this if we suppose a community 
practising barter or using a pure barter gold 
currency to change suddenly to a credit system. 
It would be similar to starting to play a game with 
money with a common pool, in which each of the 
players before he was entitled to play had to 
contribute so much money to the pool, except 
that, instead of money, in the one case goods or 
other exchangeable property and in the other case 
gold coins, now withdrawn and reverting to their 
original function as a commodity, would be paid 
into the pool in return for receipts in the form of 
the new credit-debt money. The consequence 
would be that the croupier, or authority in charge 
of the pool, would be holding in trust for the 
community various forms of property equal to 
the Virtual Wealth of the community. But as 
there is no intention of ever winding up the 
monetary system in the future, it is clear that all 
this actual wealth, equal to the Virtual Wealth 
in value, would remain permanently in the pool. 
If the community prosper and expand, the pool 
will naturally tend to grow rather than decrease, 
through the people increasing their Virtual 
Wealth and giving up the equivalent actual wealth 
for it in exchange for the receipts that are money. 


It can only decrease through the community 
decreasing in numbers or well-being and it can 
only be reduced to nothing by the community 
ceasing to exist. 

There would then arise the situation which the 
banking profession first discovered and kept as 
a trade secret. They acted as croupiers and 
received the public's gold voluntarily surrendered 
to them on loan or for safe-deposit, and issued 
notes for it that were at once receipts for the gold 
given up and promises to pay it back on demand. 
Then these notes began to circulate as money. 
At first for every note that remained in circulation 
the gold lay idle in their safes, and on the average 
they always held a much larger quantity of gold 
than sufficed to repay those who, instead of using 
the notes to pay their debts, demanded the gold 
back from the bank. This did not last long, for, 
naturally, they began lending some of the gold 
out at interest to safe borrowers, and only kept 
enough to satisfy their clients demanding gold. 
The situation then was that they owed their 
depositors more gold than they could at any time 
repay, but were in turn owed as much gold by 
those to whom they had lent it, and were under 
bond to bring it back at some date in the future. 
But this did not last long either. 

The False Step. It is this next step which ushers 
in money in its present modern sense in which it 
is an essentially new invention, and all the sub- 
sequent steps are merely elaborations of the 


original. For the bankers began soon to lend not 
gold but their own notes, or promises to repay 
gold which neither they nor their depositors 
possessed. Even if there was so much gold in 
existence at all, it was the property of and in the 
possession of others entirely outside the circle 
of their business. The situation, then, was, 
assuming that they only lent notes and no gold, 
keeping the latter as a " backing " for their note 
issue, that they owed gold to the extent of their 
client's " deposits " plus the outstanding note- 
issue in circulation, which they were pledged 
to redeem in gold if returned to them, and against 
the debt they held the gold backing in their vaults 
and the securities or " collateral " of their 
borrowers, that is of those to whom they had lent 
notes (promises to pay gold), but from whom, 
naturally, they would have to accept their own 
notes in repayment of the debt if presented to them 
instead of gold. 

This is the origin of modern money as nothing 
for something on the part of the legitimate user ; 
as something for nothing on the part of the issuer ; 
and as something for a promise to pay it back on 
the part of the borrower, with sufficient security 
to whom the issuer transferred the acquisition 
of the something accruing gratis from the issue. 
It is all very easy to understand from the stand- 
point of Virtual Wealth, and the necessity that the 
aggregate of the individuals of the community 
must give up for nothing and be permanently 


owed for part of their possessions if they are to 
avoid barter or a barter-currency. If from the 
first the creation of money had been preserved, 
as it should have been, as the prerogative of 
the State, the chequered history of the last 
two centuries and the impending dissociation 
of the whole Western civilization would never 
have occurred. But the banker alone knew this 
aspect of money, and for long he kept it as 
the high secret of his trade. But it is a secret 
no longer. 

Why was it False? Why is it so vital to the 
safety of the realm that money, and particularly 
credit money, should be the prerogative of the 
Crown, as a central authority representing the 
whole nation ? The reasons are numerous, but 
by far the most fundamental is apparent if we 
consider again the above stage, which represents 
the invention of modern money in the sense 
defined. A new currency has been created by the 
banks through people engaged in industry 
incurring debts to the banks which cannot be 
repaid except by destroying that currency, for there 
is nothing else to repay it with. When the banks 
borrowers have to repay they must either find 
gold, which for all the bankers knew or cared had 
no physical existence, or the bankers' own notes. 
Now these notes were not given away. The 
amount of the issue is the amount owed to the 
bank. By the issue of new money the debt to the 
bank is created and by the repayment of that 


debt the money is destroyed again. Clearly 
long before any great proportion could be repaid 
there must arise a shortage of money and all the 
remaining debtors would be physically unable to 
obtain the money, that is to sell their produce or 
manufactures at any price. 

The Banker as Ruler. From that invention 
dates the modern era of the banker as ruler. The 
whole world after that was his for the taking. 
By the work of pure scientists the laws of con- 
servation of matter and energy were established, 
and new ways of life created which depended 
upon the contemptuous denial of such primitive 
and puerile aspirations as perpetual motion and the 
ability ever really to get something for nothing. 
The whole marvellous civilization that has sprung 
from that physical basis has been handed over, 
lock, stock, and barrel, to those who could not 
give and have not given the world as much as 
a bun without first robbing somebody else of it. 
Industry and agriculture, the producers of the 
positive wealth by virtue of which communities 
live, can only expand by getting deeper and deeper 
into debt to the banks. They have been reduced 
to permanent and inescapable bondage by a subtle 
and, in its place, useful form of accountancy 
that continues to count below the level at which 
there is anything to count. The skilled creators 
of wealth are now become hewers of wood and 
drawers of water to the creators of debt, who have 
been doing in secret exactly what they have 


condemned in public as unsound and immoral 
finance and have always refused to allow Govern- 
ments and nations to do openly and above board. 
This without exaggeration is the most gargantuan 
farce that history has ever staged. 

The Profits of the Issue of Money. We left 
our hypothetical community suddenly changing 
from barter to credit-debt money, with the central 
issuing authority in possession of gold and other 
property of value equal to the Virtual Wealth of 
the community, and the latter in possession instead 
of the receipts for what they had given up which 
are to serve them in future for ever after as money. 
Clearly the whole stock of valuable property in 
the possession of the issuer cannot in practice 
be left as a " backing " for the money. All of it 
if unused, except the gold and jewels, would rot. 
As there is not enough of such imperishable forms 
of wealth to serve as money, it is idle to relegate 
all there is to the utter waste of permanent 
incarceration in strong rooms and vaults, as 
part security for a debt that can never be repaid 
except by the community reverting to the 
primitive barter system which it has outgrown. It 
needs but common sense to suggest that it should 
all be used at once for the general purposes of the 
community by defraying part of the necessary 
public expenditure out of this store, which would 
otherwise have to be met by taxation. As the 
Virtual Wealth of the community grows, the 
further wealth it has to give up for the further 


new money it needs ought also to be devoted to 
the same purpose. 

Many people commencing the study of money 
over-estimate the amounts that can be got from 
the community for nothing by its issue. It is 
even suggested that taxation could be entirely 
met this way and still some would be left over for 
free distribution ! But the amounts so obtainable 
gratis are not likely to embarrass any modern 
Government ! Though large from the point of 
view of the individual, they are small compared 
with the scale of national expenditure. Lively 
hopes again have been entertained in many 
quarters of providing national dividends out of 
such new money, but these seem to depend on 
simple mistakes as to the nature of an actual, or, 
indeed, conceivable, money system. Any given 
single quantity of money will normally go on 
distributing goods and services for ever at a 
constant rate if the price-level remains unchanged, 
so that the total quantity of goods and services 
it will forward from production to consumption 
and use is unlimited. No new money at all can 
be issued unless and until there is an increase of 
the rate of production. It is only when the rate 
of production and consumption increases, that is 
to say when the quantities of wealth produced 
and consumed per year, or in any other unit of 
time, increase, that proportionally more money 
has to be issued if the price-level is to remain 
the same. 


Money Indestructible without Expropriation. 
It is nonsense to suppose it can be destroyed 
" when it has done its work ". It cannot be so 
destroyed without the owner of it being expro- 
priated of his claim to goods and services. The 
facility with which the banks can destroy money 
as well as create it depends on the fact that such 
money is not given away at all, but only lent, 
and the credit money that was created for the 
borrower is automatically expropriated from him 
again and disappears from existence when he 
repays the loan. Whereas the suggestion to pay 
national dividends out of such credits does not 
contemplate lending money at all but giving it away, 
and such claims to wealth cannot be destroyed 
again except by taxation, or some other form of 
expropriation, compelling the owner to surrender 
up for destruction the money so issued. It is 
positively amazing how ready some people are 
to believe in magic still. 

It is not, of course, contended that the profits 
of the issue of new money could not be issued 
to consumers as a national dividend, but merely 
that the amounts would hardly be worth while, 
since practically every consumer already pays 
far more in taxes than he could hope to receive 
from such a source. It would seem more natural 
to use the profits of the issue of new credit money 
for the general relief of the taxpayer. But the 
total quantities of money that have been privately 
issued in" the past would, if now applied to the 


relief of the taxpayer, effect a very worth-while 
reduction in his burden, something like 2 per 
head of population per year. Once this were done 
the further annual amounts that would be 
necessary in this country, if distributed, either as 
a relief to taxpayers or as a national dividend, 
could hardly be more than a few shillings per 
head per annum, that is if the price-level is not 
to be increased. If the price-level is not held 
constant, but allowed to rise continuously until 
ultimately the money becomes worthless, then, 
of course, there is no limit at all to. the amount 
of money that can be distributed as a national 
dividend, or issued in lieu of imposing taxation. 
But to contend that a worth-while national 
dividend can be issued and prices prevented 
from rising by legal enactments is nowadays 
absurd. For everything so got gratis must be 
exactly accounted for in the new economics by 
others going without it, that is by their retaining 
without spending it more money than before by 
the extra amount issued. They must do this 
anyway, but whether that means that they are 
voluntarily giving up more wealth for it than before 
is entirely a question of the price-level. If they 
cannot afford to do so then the price-level will 
rise and the money becomes worth less. 


r T 9 HE Origin of the Cheque. In point of time 
* the invention of the cheque antedates that of 
the bank-note, originally a promise to pay gold on 
demand. It was customary for merchants who 
had deposited gold for safe keeping at the gold- 
smiths, the originators of " banking " as it is 
still called, to write an order or instruction to them 
to hand over some definite amount of their gold 
to another person than themselves, named in the 
order, who, on presenting it and endorsing it as 
evidence that it had been carried out, was paid 
this amount. It was a means of settling accounts 
with creditors by instructing the keeper of the 
debtors' funds to settle them without the debtors 
needing themselves to draw out the money, which 
is exactly analogous to the modern cheque. 

From the first, however, the bankers developed 
the bank-note, for this was a powerful means of 
spreading their reputation for honest dealing and 
trustworthiness through the whole community. 
People finding they could always if they wished 
exchange bank-notes at the bank for gold, became 
accustomed to accept them whoever tendered them 
in payment, and not to change them for gold at 



the bank except for special reasons, as when going 
abroad, whereas the name of the drawer of 
a cheque would be known to relatively few people 
and therefore had not the same degree of general 
acceptability as the note as a form of money. 
Honest dealing and trustworthiness then meant 
ability to give the gold for the paper whenever 
asked. At that time it was what mattered most, 
and there is no doubt that the early banker was 
a social benefactor in inventing a credit medium 
of exchange when gold no longer sufficed. This 
old-fashioned type of banker would be appalled 
at the terrible power that he has placed in less 
scrupulous hands. 

It was to the banks' direct interest to see that 
counterfeit imitations of their notes were promptly 
detected and removed from circulation, and that 
those issuing them were tracked down and 
severely punished for doing, as it now appears, 
something far less socially dangerous in its ultimate 
consequences than what the bankers were doing 
themselves. But at that stage in the evolution of 
money the physical impossibility of repaying the 
debts they were so careful to create for that 
purpose was not understood, and the public 
were still firmly convinced that the convertibility 
of the paper into its nominal worth of precious 
metal constituted the note money. Whereas the 
paper itself was money because the owner had 
given up that value of goods and services to acquire 
it, and was therefore entitled to an equivalent 


value in exchange for it. The whole money- 
issuing interests, however, continued by every 
means in their rapidly growing power sedulously 
to propagate the other point of view. That is 
why they and the politicians thought that there 
would be an outcry when there came into force 
at the outbreak of the War the scheme for recalling 
all the gold and substituting a pure credit money. 
But there was no outcry whatever, most people 
actually preferring in use the new paper notes to 
golden sovereigns. Neither has there been any 
justification, from the point of view of public 
prejudice, for the persistent and ruinously 
unsuccessful post- War efforts to return to gold. 
What the public want is a constant price-index, 
so that the value of money remains stable in goods 
and services. That they cannot have, as we shall 
see, without destroying " banking " as now 
understood. Here, as always, one has to 
distinguish very sharply between the interests of 
the public and those of their real rulers ; and so 
far democracy has never had a government that 
could trust itself to rule independently of the 

Government Regulation of " Banking ". But 
though the public were sedulously protected in 
the banks' interest from the counterfeiter, they 
were not protected from the failures of the banks 
to redeem their impossible promises, which 
became so frequent and caused such widespread 
ruin that the whole monetary system in this stage 


of transition was jeopardized. There were many 
reasons for this. The Government having allowed 
in the first instance the banks to usurp their 
prerogative in creating money, instead of creating 
it themselves, attempted in every possible way to 
hamper and thwart them. So far, at least, as the 
country and commercial banks were concerned, 
they were suspicious and hostile to innovations 
which seemed to go against the ordinary standard 
of commercial morality and to be a new form of 
counterfeiting. But as regards themselves they 
acted differently. Instead of issuing sufficient 
money themselves, they more and more favoured 
and empowered one bank, the Bank of England, to 
act for them in return for its raising revenue for 
Government purposes. This bank was founded 
in 1694 in the reign of William III, on the model 
of earlier Italian banks, to provide the Government 
with funds, and it lent money at interest first in 
return for permission to issue notes of equal 
amount, and was soon rewarded by a monopoly 
of note issue, redeemable in gold coin on demand, 
which lasted till 1709. From its genesis to this 
day it has never been a bank of the English nation, 
but a bank to provide the Government with 
money primarily and principally for war 
expenditure a weapon which the Government 
can, and does, employ against the people. But 
from being what is known as a bankers' bank, 
it has become now almost the Government's 


Outside of this object State regulation of 
" banking " has been restrictive. Speciously 
directed to protecting the public from being 
swindled by dishonest and unsubstantial banks, 
it rendered the position of honest and then socially 
minded bankers so precarious that their failure 
and the consequent ruination of merchants and 
commercial people became almost inevitable. 
The policy culminated in the Bank Charter Act 
of Sir Robert Peel of 1844, which nominally 
fixed the monetary system in this country up to 
the War, but through which the banks soon found 
they could drive a coach-and-four. It legislated 
to limit and ultimately to extinguish the issue of 
bank-notes in England except by the Bank of 
England, limiting the latter's issue to fourteen 
millions above the gold reserve (the so-called 
fiduciary issue, because it was supposed to be 
founded on the public's confidence rather than 
on their necessities). This effectively checked the 
expansion of the note currency and the upshot 
was that the cheque, at first secretly, took the 
place of the note as a means of creating new money 
and soon became the overwhelmingly pre- 
ponderating form of the credit medium of 

Lending Cheque-Books. Instead of printing and 
lending notes, an obvious creation of money, this 
much more insidious and dangerous form of issue 
grew up. The borrower without money was 
allowed to draw cheques just as if he had money, 


and to create an overdraft at the bank. The bank's 
balance-sheet was falsified so that it still balanced. 
For on the one side would be credited to the 
individual the limiting sum up to which he was 
authorized to overdraw and on the other side the 
same sum as owing as a debt of the individual 
to the bank. Naturally, as always, substantial 
security or " collateral " had to be deposited 
with the bank before the privilege was granted, 
considerably more in value than the amount of 
the overdraft, to provide an ample margin of 
safety to the bank. If the debtor defaulted a forced 
sale of the security recovered from the public 
the sums he had been allowed by his overdraft 
to put into circulation. Under such circumstances 
the security could not be expected to fetch its 
real value. As, moreover, such liquidations occur 
in times of bankruptcy when money is scarce 
and prices low, whereas " loans " are wanted in 
times of boom when money is abundant and prices 
high, the banks so were enabled to acquire 
valuable securities at forced-sale prices. They 
had only to hold the securities till " confidence " 
returned, when they were re-issuing the money 
they had called back so that it was again plentiful, 
to realize much more for them than they had 
fetched when sold to recover from the public 
the money the overdraft had put into circulation. 
It is important to realize that whichever way it 
works it is a case for the bank of " Heads I win, 
tails you lose ". Moreover, the money in which 


they are repaid is, on the average, worth more in 
goods than that which they create to lend. 

There was essentially nothing new in this, or 
different in principle from lending " promises- 
to-pay-gold " instead of gold itself, save that the 
banks avoided the necessity of giving printed 
receipts for the goods and services their borrowers 
obtained for nothing, and there was a secret instead 
of open creation of money. Instead of lending 
notes, the banks, in effect, now lend cheque- 
books and the right to draw cheques up to limited 
sums beyond what the borrower possesses. For 
nearly a century, until the revelations of the War 
made it impossible to conceal the truth from the 
general public, the bankers stoutly denied that 
they were creating money at all, and claimed that 
they were merely lending the deposits their 
clients were not using. The President of the Bank 
of Montreal not a year ago continued to repeat 
this, but, nearer the centre of things, all this was 
known and admitted by the orthodox apologists 
for this monstrous system even before the War, 
usually by some such lying phrase as " Every 
loan makes a deposit ". 

Genuine and Fictitious Loans. For a loan, if it 
is a genuine loan, does not make a deposit, because 
what the borrower gets the lender gives up, and 
there is no increase in the quantity of money, but 
only an alteration in the identity of the individual 
owners of it. But if the lender gives up nothing 
at all what the borrower receives is a new issue 


of money and the quantity is proportionately 
increased. So elaborately has the real nature of 
this ridiculous proceeding been surrounded with 
confusion by some of the cleverest and most 
skilful advocates the world has ever known, that 
it still is something of a mystery to ordinary 
people, who hold their heads and confess they 
are " unable to understand finance ". It is not 
intended that they should. But if, instead of 
trying to puzzle it out along the lines of " what 
you get for money ", these people will reverse 
the procedure, as in this book, and do so on the 
of " what you give up for it ", the trick is clear 

Current Account Deposits. Cheque-account 
deposits at the bank represent, in monetary units 
of value, what the owners have given up in the 
way of goods and services in order to acquire 
these claims to equivalent goods and services on 
demand. In so far as one spends his money another 
receives it, or in so far as one receives the goods 
and services owing to him another gives them up 
and is credited for them. With true " time 
deposits ", however, it is quite different, though 
banking practice has been directed to slurring 
over the distinction. In an honest money system 
this difference would be insisted upon as essential 
to accurate accountancy. However, this is too 
important a matter to deal with incidentally, and 
its consideration will be postponed. We will con- 
fine the argument here to cheque account deposits. 


The aggregate of the cheque-accounts, exclusive 
of genuine time-deposits, represents in units of 
money value, as stated, what the owners of money 
(not the borrowers of it) dealing with the banks 
are owed on demand in goods and services from 
the nation in which the money is legal tender. 
These vast sums of money are entirely of the 
bank's creation in the first instance. When the 
bank pretends to lend their money they do not 
reduce the amount of the claims of the owners to 
goods and services on demand by a farthing. They 
do not inform them that they can no longer draw 
it out as it has been lent to others ! They 
create among the general body of vendors who 
supply goods and services, in exchange for the 
cheques the banks authorize their borrowers to 
draw, new claims on the community for goods 
and services. When these cheques are paid into 
the vendors' accounts they create new deposits 
at the banks. When the borrowers repay their 
loans and balance their accounts, they with- 
draw money for the purpose from those to whom 
they sell goods and services, and by cancelling 
their overdrafts this money then disappears from 
existence, just as unaccountably as it made its 
appearance. If we can imagine the impossible, 
that they ever succeeded in freeing themselves 
from their indebtedness to the banks, every 
penny left would be worth half-a-crown and people 
earning 3 a week would get 2s. a week. 

Why Cheque-money is Preferred to Tokens. 


We have only to substitute physical counters 
or receipts to show the utter dishonesty of the 
accounting. For if a man surrenders a physical 
money token, whether to lend it to somebody else 
or to buy something with it from somebody else, 
there's an end of it so far as he is concerned. He 
cannot ever lend or spend it again. He has to 
earn another or wait till his loan falls due before 
he can get another back to lend or spend again. 
But a man who deposits his money in a cheque 
account can lend or spend it exactly as though he 
had not deposited it at all, by using a cheque for 
the amount, and yet it is this same money the 
bank pretends it lends out. 

The Gold- Standard. It is only necessary very 
briefly to consider the now obsolete methods by 
which, up to the War, the quantity of money in 
existence was kept in the perpetual state of ebb 
and flow known as the Trade Cycle or Credit 
Cycle, by making it convertible with gold. The 
details of this " beautifully working automatic 
regulation " is the stock-in-trade of all pre-War 
conventional money writers, and need not detain 
us. The quantity of money was regulated by means 
of the gold-standard. The latter meant that the 
value of the money unit in a large number of 
countries was kept equal to that of a certain 
weight of gold by making the money in theory 
always exchangeable with gold. In practice it 
meant the growth of a number of new devilries 
having for their object the frustration of every 


attempt to exchange it for gold, so soon as that 
exchange began to occur. Since there was only 
enough gold in the whole world to be had for 
a miserable fraction of the claims to gold, which 
the easy method of lending cheque-books had 
brought into existence, in no case must the bankers 
be caught out. Everyone else bore the losses. 
Boom or slump, the banker throve. 

It was easy to fix the money price of gold, but 
what fixed the goods price of gold ? Gold being 
given a fixed price, the price of every other 
commodity now varied in relation to the one 
arbitrarily fixed. The average price, or the price- 
level, during last century varied enormously. 
There were five well-marked periods of changing 
value in all countries, due to innumerable causes. 
Apart altogether from human and psychical 
influences, some of the more obvious physical 
ones were the discovery of gold mines, the 
invention of new technical processes by which 
gold is extracted, the number of countries having 
gold currencies in comparison with those having 
silver currencies, and so on. It was really much 
worse than standardizing the barometer height, 
calling it a " bar ", whatever it was, and expressing 
all lengths in terms of what the " bar " happened 
to be at the moment. The variation of the price- 
level in terms of gold was, however, over a range 
of two or three to one. This makes the variation 
of the barometer height in terms of the yard 
or of the yard in terms of the barometer height, 


whichever be taken as the " standard ", almost 
negligible by comparison. 

The capacity of the banks to create money 
without giving up anything for it depended on 
their always having enough legal tender (conver- 
tible into gold) to meet the demands of their 
depositors ; that is, of those who have deposited 
money on " current account ". In practice it 
was found that about fifteen per cent of their 
total deposits sufficed for their safety but, as 
the use of cheques continually increases, the 
percentage falls. The factor of safety is now 
considered to be about ten per cent, but may 
not be nearly as much. Nobody but the bankers 
themselves can see, in an age of potential plenty, 
any sense in their always trying to make i do 
the work of ^10 or more, when they have actually 
created claims to nine others which the owners 
have only to ask for to reduce them to panic, and 
send them howling to the Government for a 

The Correct Procedure. The proper thing to 
do, of course, would be for the Government 
to issue as many pounds as the citizens have 
given up gratis pound's worth of goods and 
services, not one-tenth as many, and it should 
require the banks to hold for ever after i of 
national money for every i in the current 
accounts of the banks' depositors. 

Since banking became in reality minting by 
issuing cheque-books instead of notes, the banks 


have never been solvent, but have been liable 
to have to stop payment so soon as they were 
asked for more than one-tenth of the money (legal 
tender) they owed to their current account 
depositors. The measure proposed above would 
make them solvent for the first time in the modern 
phase of their history. The money being always 
in the banks, there would be an end of the frenzied 
shipments of gold back and forth, to raise the 
value of money here and depress it there, to throw 
goods intended for export suddenly on to the 
home market and as suddenly to drain the home 
market and ship the goods abroad, and all the 
nefarious and unscrupulous devices which, in the 
course of a century's experience of this secret 
private minting, have been invented to keep the 
world poor and maintain the supply of hard- 
working borrowers in an age of plenty. 

Outside of this real explanation, the sole 
ostensible reason of it all is to prevent people 
from asking for the money for which they have 
had to give up the equivalent value in goods 
and services, but for which the Government 
has hitherto omitted to issue proper receipts. 
True the Government has not done so because 
it has as yet not received the goods and services, 
but the hard-working borrowers have received 
the money and have moreover furnished ample 
security in the way of collateral for every pound 
they have borrowed. The proposal, therefore, 
is that the Government should issue the necessary 


money to the banks in exchange for the borrowers' 
collateral, so that henceforth these borrowers 
owe, not the banks, but the nation which, not 
the banks, has supplied the goods. They can 
then repay their debts without destroying the 
nation's currency and making it impossible for 
them to find the money to pay. For as the loans 
fall due and are repaid, the Government should 
put the money back into circulation (or into the 
pound-for-pound deposits of cheque users) by 
buying with it National Debt securities and 
destroying them. Thus an equivalent of interest- 
bearing National Debt would be destroyed for 
the non-interest bearing National Debt that is 
money. For this money has been secretly issued 
by the banks through the cheque system. This 
occurred when the Government stopped them 
from issuing bank-notes and sought to restrict 
and control this form of currency through the 
Bank of England. It is time the legality of these 
operations was tested in the Courts. It is a 
curious kind of law that makes the open issue of 
money treason and its secret issue under a 
camouflaged name, as bank-credit, so immune 
from penalty that it was, till recently, treason 
even to question its legality. But that is now all 

The Credit or Trade Cycle. Up to the outbreak 
of the War the system worked out its inevitable 
cycle in a relatively simple manner something 
as follows. 


i. A period in which the increase of money 
(through more bank loans on the average being 
issued than are repaid) occurs faster than the 
Virtual Wealth increases and prices are therefore 
rising. There is abundance of goods in course of 
production but owing to the loans being made 
when the production is initiated rather than 
in the correct manner, the new money being 
issued to consumers, in relief of taxation, after 
the new production has matured and is ready 
to be sold production and consumption are 
put out of phase. Production lags behind con- 
sumption by about half the average period of 
time taken to produce, since the new money 
takes out of the market finished wealth to pay 
the workers, and the latter only put in unfinished 
wealth at its initial or some intermediate stage. 
Later it will be necesssary to revert to this funda- 
mental physical fallacy of the bankers' whole 
monetary system. 

But it is easy to see, even at this stage, both 
why prices must rise and why the Virtual Wealth 
cannot increase to the extent of the increase of 
money so that the value of the latter is maintained. 
People are always at the market with money to 
buy some months on the average before the 
goods are there. This causes a drain on the 
existing stocks, and shortage of finished wealth, 
so that unless prices rose there would be no 
goods at all to sell for that part of the whole 
money equal to the extra amount created. Of 


course prices rise so that this does not happen. 
But all get less goods for their money than before. 
The money now being worth less than before, 
people have to retain more of it to possess the 
same Virtual Wealth (or credit for goods and 
services) as before. Soon the increased quantity of 
money buys no more than the original quantity did. 

2. Though all other prices are rising, that of 
gold is arbitrarily fixed. This, in itself, only means 
that gold falls in value relatively to goods. The 
effects of new issues of credit money are the same 
as if new gold mines had actually been discovered. 
The rise of prices tends to make existing gold 
mining unprofitable and mines unable to pay 
which before could do so, which again will 
reduce the output of gold. But any such influence 
as this, decreasing the annual production of gold, 
can only produce a minute difference in the 
aggregate quantity of gold, and could only 
produce a perceptible effect on the price-level 
after a long time. The actual demand for gold, 
outside of a backing for credit money, is now not 
great. It is really rather a useless metal at its 
price. This change of ratio between the values 
of gold and goods in itself could produce no 
automatic regulating effect in a self-contained 
community, since gold hardly enters into the 
category of commodities most people buy in order 
to be able to live. But, of course, the rise of prices 
swindles all creditors for the benefit of debtors. 

The effect of the gold-standard, however, 


is to make gold international money. Since 
money is a debt only on that community of which 
it is the legal tender for the settlement of debts, 
and not a debt in the least acknowledged by or 
enforceable against any other country whatever, 
international interindebtedness must be settled 
by the transfer of actual goods or services from 
the country owing to the country owed, in so 
far as it is not of the nature of, or is converted 
into, a permanent loan or investment, bearing 
interest. Making legal tender convertible into 
gold thus means that, when the prices of every- 
thing else have risen and that of gold has not, 
indebtedness to a country abroad is more cheaply 
settled by shipping gold rather than other goods. 
We have seen that the first stage results in a 
permanent shortage of goods, through production 
permanently lagging behind consumption. This 
naturally creates a demand for goods, and goods 
can now be bought abroad wherever they are cheap 
and plentiful and paid for by shipping gold in 
exchange, rather than other goods, since every- 
thing else but gold has risen in price. Prices are 
in terms of the depreciated currency in the home 
market but at the old rate abroad. Hence the 
gold stocks of the country are drained out in this 
second stage, and under the system existing 
before the War, when the public were entitled 
to ask for gold in exchange for notes and cheques, 
the ratio between " cash " and credit (total 
deposits) at the banks was reduced ultimately 


below the limit the banker considered essential 
to his solvency. 

3. The banker now decreases the quantity of 
money in existence by not renewing his loans 
so fast as they are repaid. These loans, contracted 
in a period of rising prices, have now to be paid 
back in a period of falling prices so that, through 
the change in the purchasing power of money 
and quite apart from the interest paid for the 
loan, the goods and services that have to be given 
up by the borrowers to obtain the money to repay 
must always on the average be greater than those 
obtained by them with the money they were 
lent. Before any considerable proportion of these 
loans can be paid it becomes impossible to obtain 
the money, that is to sell goods, except at a 
ruinous loss to the producers. Hence a number 
of them are rendered bankrupt. Their collateral 
is sold by the bank, or, if it will not now fetch 
the amount to repay the loan, appropriated by 
them. In this connection those borrowers who 
have been most deserving, and whose assets 
are therefore worth more than those who have 
been less efficient and careful in the conduct 
of their businesses, are those first victimized. 
They are sold up and ruined when those whose 
assets would not meet the claims of the bank 
have a better chance to escape in the hope they 
may be more worth selling up later. 

How the Losses are Distributed. Under (i) the 
money the banks create is paid for by the whole 


community by the loss of the purchasing power 
of the pre-existing money. All contracts for future 
periodic payments for services, such as wages, 
salaries, interest, and rents, and those fixed by 
law or custom, such as transport fares, postal 
services, and professional fees, are vitiated to the 
injury of those who receive money while those 
who receive these services obtain an uncovenanted 
benefit, exactly as if there had been a universal 
shrinkage in weight of the pound, the volume of the 
pint, or the length of the yard. This is the inflation 
period in the only sense the term has any meaning, 
namely the period when the worth of money 
suffers debasement. 

Under (2) there is a profound international 
disturbance endangering the friendly relations 
between nations which we still have to go into 
at greater detail. Under (3) we have the defla- 
tionary period, when the value of money is being 
brought back to the value in gold it originally 
had. There is general economic paralysis through 
the efforts of the debtors to repay their debts 
destroying the means of payment. In the whole 
system the fundamental purpose of money has 
been lost sight of. Instead of being a means 
for enabling a community freely to forward goods 
and services from the producer to the ultimate 
consumer and user, the interests of the whole 
community have been sacrificed to enable banks 
to lend more money than exists in physical or 
tangible form. There is not the slightest reason 


why just as much should not so exist as the 
economics of the country require, so long as it is 
issued only when additional wealth is awaiting 
sale. The situation has arisen through the failure 
of the nation to exercise its prerogative over the 
issue of money and through the banks' preference 
for a method which avoids the issue of proper 
national receipts, or anything at all in return, 
to those who have given up goods and services 
for the money. Nor is there the slightest reason 
for the existence of banking at all as it has now 
become, whatever may have been the case two 
centuries ago. The public own the goods and 
services the banker indents upon without furnish- 
ing anything in return for the levy and they pay 
for the private issue of money by being deprived 
of the profits of the issue, as well as by the rise of 
prices the incorrect mode of issuing it entails. 

Fraudulent Monetary Terminology. The whole 
terminology of the system is inverted. Thus 
bank-credit, when the accounting is done in goods 
and services rather than figures, should be bank- 
debt, the debt of the banks to the community 
for the goods and services the banks have levied 
upon the nation by empowering impecunious 
borrowers to obtain them without payment. 
Again in the all-important cash to credit ratio, 
which in different epochs has varied from fifteen 
per cent to probably as low as seven per cent or 
less, both terms are false. We may postpone the 
consideration of the second, which is simply 


the sum of the current account and time 
" deposits ", and is really the debt of the bank 
to its depositors for money on demand and on 
due notice. It is the public's credit and the 
banks' debt. But as regards " cash ", as the 
veriest tyro knows now, by far the greater part 
even of this " cash " is now created by the Bank 
of England, debts of the latter to the clearing 
house banks being accounted as " cash ". We 
may postpone also the nearer consideration of 
this for later consideration. Under Government 
protection this bank seems to think it a great 
joke bamboozling the public. 

The Gold Drain. The devices for tinkering 
with the currency and making a minimum of 
genuine national money the base for the support 
of, probably, a ten- to twentyfold greater inverted 
pyramid of the will-of-the-wisp magically appear- 
ing and disappearing money called " bank- 
credit ", and the method of regulation of the total 
money in existence by the Bank of England, 
were of a brutal and utterly callous character. 
The drain of gold from the Bank of England 
under (2) " automatically " resulted in a reduction 
in the total quantity of money in existence ten 
to twenty times the amount of gold removed. 
For each shilling or two of gold money that left 
the country without replacement i was destroyed 
by the banks arbitrarily calling on their borrowers 
to repay their loans as we have seen, an impossi- 
bility. The invention of a new currency, as a 


debt to the issuing bank which could never after 
be repaid, because repayment destroyed the 
currency and the means of payment, put the 
whole wealth-producing system of the world 
in pawn to the banker. Ever after the world was 
in his absolute power. 

The evils of genuine usury in the Middle 
Ages, through the shortage of the precious metals 
and insufficiency of the medium of exchange, 
cried aloud to heaven for redress. But the genuine 
usurer did at least give up what he lent and that 
for which he received interest, whereas the banker 
does not, but levies upon the goods and services 
of the nation for what he pretends to lend and 
upon which he receives interest. It is bad enough 
to be put in the grip of the money-lender who 
does lend his money, but it is a million times 
worse to be in the grip of the pretended money- 
lender who does not lend his own money 
but creates it to lend and destroys the means of 
repayment just as fast as the debtors succeed in 
repaying it. This is a surrender of the powers 
of life and death over the nation's economic 
life into the hands of irresponsible impostors. 

The Government's Connivance. That the 
Government have always been a party to this 
abrogation of their function was revealed in the 
clearest manner at the outbreak of the War, when, 
for the first time in history, the throttle-hold 
of the banks on industry suddenly relaxed, and 
the economic system was allowed to work all 


out on production for the purpose of war destruc- 
tion. The engines of the money system were 
quietly reversed before the first shot had been 
fired. Nations engaged in a world struggle to 
the death with other nations cannot afford to 
remain paralysed in the spider's web of bank 
finance. Then the banks were instructed to lend 
without limit to finance the production of muni- 
tions, and the Government undertook to print 
and issue to them the well-known " Bradburies " 
or National Treasury Notes, in denominations of 
i and i os., as required to preserve their solvency 
and the safe ten per cent cash to credit ratio, 
irrespective of the amount of credit they issued. 
The appalling rise of prices was of course attributed 
by all the City gramophones to the floods of paper 
money issued by the Government. 

In this way, by the printing and issue of three 
or four hundred millions of Treasury Notes, 
the aggregate amount of money was increased 
from some 1,200 millions in 1914 to some 
2,700 millions in 1920, being more than doubled. 
The value of i in goods fell to less than one- 
half of what it would buy before the War. The 
increase of the National Debt, due to the War, 
some 8,000 millions, was for the most part 
contracted in this debased money, and if the money 
had been correctly issued the debt would not 
have amounted to half this sum. 

The Cunliffe Committee. But before the War 
was even ended, the necessary cunning steps 


had been taken to bind the nation in the spider's 
web of bank finance again. The notorious 
Cunliffe Committee was set up to advise on the 
nation's monetary system when peace was restored. 
It was composed, with the exception of one 
academic orthodox economist like all the others 
of that day still entirely uncritical of the honesty 
of the banking profession entirely of the bankers 
themselves, and of Treasury Officials working 
hand in glove with them. It is significant of the 
close relations between the Government and the 
banking profession that several Treasury officials 
have since left the Government to become bank 
directors, including the one whose name the public 
associated with the Treasury Note. The 
Committee contained not a single representative 
of the interests either of consumers or producers, 
for whose benefit, and not for the benefit of the 
banking profession or the Treasury, money really 
exists. Nor did it contain a single monetary 
reformer although, even then, Arthur Kitson 
had been exposing the evils of the nation's 
monetary system for over twenty years, and had 
correctly predicted the inevitable consequences 
of allowing the bankers to resume their control 
over it. 

The first recommendation of this Committee 
was the early return to the gold-standard and, the 
second, that the National Treasury Notes should 
be retired and replaced by bank-notes. The 
intended effect of the first was well within the 


understanding of the ordinary stock-exchange 
dealer or estates steward, whose business it is 
to know about these matters in their clients' 
interests. It meant that the National Debt, the 
overwhelming proportion of which was contracted 
in a debased currency, should be repayable as 
regards principal and interest in gold money 
worth over twice as much. The French knew 
all about this, and it is idle to pretend the British 
experts did not. It was justified as " correcting " 
the war inflation, when all the nations' pre-War 
creditors had been swindled through the banks' 
pretending to lend, and not lending but creating, 
some fifteen hundred millions to finance 
production. This would never have occurred at 
all if the loans had been genuine loans, which at 
the outbreak of the War there would not have 
been the slightest difficulty in raising from the 
public. This wrong the Cunliffe Committee 
proposed to correct by a second and worse one, 
the universal swindling of debtors in turn for 
the benefit of the war-gorged creditors, since 
debts and the interest on them are not really 
paid in pounds but in the goods and service^ the 
pounds will buy. But all this is now common 
knowledge, and sordid beyond concealment. 

Deflation. The Report of the Cunliffe 
Committee was adopted and the Coalition 
Government of 1920 started to put it into operation. 
The ruinous deflation stage, No. (3) of the cycle, 
plunged the whole nation into economic paralysis 


from which it has hardly yet shown any signs 
of recovering. Apart from the physical destruction 
and loss of life and health among the actual 
combatants during the War, and the financial 
losses suffered by the purely rentier class through 
the inflation, the country at the signing of peace 
was in a condition of economic prosperity and 
well-being through the temporary removal of 
the stranglehold of money. 

The most absurd propaganda now began in 
the Press, the public being exhorted to produce 
more and consume less one week, and the next, 
to work short-time and share one's job with one's 
pal. The banks began suddenly to contract 
credits with the object of raising the value of 
the money and lowering prices, quite undeterred 
by the rising tide of bankruptcies and unemploy- 
ment. But, though they found it easy enough 
to produce universal ruin and misery, to lower 
prices was not so easy, the country producing 
and consuming less and less at the old price 
with the smaller quantity of money in existence, 
rather than the same as before at correspondingly 
lower prices. 

The main reason for this is that lowering of 
prices means corresponding lowering of wages 
and salaries, which is effectively resisted by 
Trades and Professional Unions. The weaker 
are driven to the wall and lose their employment, 
so that they become a charge on the taxpayer, 
while those that retain their employment 


correspondingly benefit by any lowering of 
prices that may be forced. In fact the brutal 
methods of the gold-standard were too hope- 
lessly out-of-date to reduce the price-level 
effectively after the War. Its principles were 
then quite as well understood by the economic 
advisers of industrial employers and of Labour 
as by the financial hierarchy. Moreover, 
in an age of abundance such as science has 
inaugurated, it is no longer possible to use the 
naked weapon of starvation to reduce recalcitrant 
workers to a lower standard of living as it was 
a century ago. Nor is it possible to expect business 
men to engage in production when they are told 
that, before their product comes on the market, 
prices will have fallen below what the product 
costs to make ! 

The Return to Gold. But by 1925 it was 
considered that the deflation policy had succeeded 
in its object sufficiently to risk the gold-standard 
being restored, as regards the foreign exchanges. 
The Gold Standard Act, 1925, made it possible 
to buy whole bars of gold of some four hundred 
Troy ounces weight at the pre-War price of gold. 
This openly gave a bounty to importers of goods 
from abroad, inviting them to use our stock of 
gold, with which they were provided at far 
below its market price, to export in exchange 
for foreign goods to compete against those in 
the home market. The costs of home producers 
were of course incurred in the still depreciated 


internal currency, whereas those of the foreigners 
were paid in gold units of much superior pur- 
chasing power. It was probably a desperate last 
effort of the bankers to break down the resistance 
to their policy of lowering prices, by subjecting 
the home market to bounty-aided foreign com- 
petition, but it could not and did not last long. 

True-Blue Treason. The second recommenda- 
tion of the Cunliffe Committee was carried out 
by the 1928 Currency and Bank Notes Act of 
the last Conservative Government. This, as will 
appear, fundamental change of the British 
Constitution was not made in any way a political 
issue. The Government as the true-blue upholders 
of the King and Constitution quietly, and with 
the minimum of fuss, authorized the retiral of 
the National Treasury notes bearing the King's 
head and the substitution for them of bank- 
notes bearing the Bank of England's Promise 
to Pay. At best this promise could have very 
little meaning, but it was rendered entirely 
bogus when the Coalition Government of 1931 
went off the gold-standard ! The decision to 
do this was all the more surprising inasmuch 
as the ostensible reason of the Coalition Govern- 
ment was to prevent such a " calamity " from over- 
taking the nation. That, at least, was the reason 
given during an election campaign based even 
less on truth and reality than is now customary. 

The 1928 Act. The 1928 Act, " deeming " 
the Treasury Notes to be bank-notes, made 


provision for their replacement by a " fiduciary " 
issue of 260 millions of Bank of England Notes 
above the gold reserve, with provision for the 
increase or decrease of this issue by consultation 
between the Bank and the Treasury, it being 
subsequently increased by 15 millions when the 
gold-standard was abandoned in 1931. Much is 
said in this Act about the purely nominal liability 
of the Bank for this issue and little about the 
profits of the issue, but it seems clear that the 
net profits, as agreed between the Bank and 
the Treasury, are handed over to the nation. 
This is the sprat to catch a mackerel, as we 
shall see in the next chapter, when we deal 
with the immediate sequel. For in 1932, on the 
base of the 15 millions increase, the banking 
interests were able to increase their holding of 
the nation's marketable securities, or of interest- 
bearing " loans ", by a cool 300 millions. The 
1928 Act marks a second fundamental step in 
the evolution of privately issued currency, 
the first of which was taken when the early 
goldsmiths found it " safe " (for them) to 
issue bank-notes, or promises-to-pay gold on 
demand many times in excess of the gold they 
possessed. These recent rapid changes have much 
clarified the real issue at stake and made it possible 
to bring it home to the nation beyond the pos- 
sibility of its being misrepresented. 

What is Genuine Money To-day ? It has been 
necessary in this chapter to go in some detail 


into the kaleidoscopic changes which the empirical 
body of rules that does duty as our monetary 
system has undergone since the outbreak of the 
War, though much of it is familiar to the ordinary 
reader. But this history has involved deferring 
to the next chapter some of the more interesting 
and crucial considerations that underly these 
changes. Money under the existing situation 
has no longer the remotest resemblance to what 
it has ever been before. All the former ideas 
about good money and bad, about genuine money 
issued by the State and the private money put 
into circulation by the counterfeiter, about the 
duty of the State to protect the owners of money 
from its being maliciously tampered with and its 
value in goods debased, have now gone overboard. 
We are in an age of " monetary policy " when the 
value of it is continually altered, by the means 
well known to the banking profession, to make 
it worth less or more, thus to raise the price- 
level or to lower it. To stabilize its value is 
quite impossible without utterly destroying the 
pretences upon which the banking system has 
battened, whereas, if these were put a stop to, 
its value would again be just as stable as it used 
to be. In all this there is not given a moment's 
consideration to the most elementary principles 
of justice to the owners of money, who give 
up for it valuable goods and services and have 
a right to receive again value equivalent to that 
which they have given up. 


MONETARY Illusions. The advantage of 
* *** money in use, that it enables all economic 
values to be expressed in terms of a common 
unit, is one of the greatest disadvantages in 
understanding its real nature. All economic 
transactions with which the ordinary citizen 
is concerned are always first translated into 
and accounted for in money units. Indeed, 
money units are often used without any qualifica- 
tion both for money and for such forms of 
property or debts as are easily convertible into 
money. The definition of money in this book is 
that it is the debt to the owner for a certain 
value of marketable property obtainable on demand 
in the country in which the money is legal tender 
for payment of debt. It is because ordinary 
citizens are never a consenting party to the 
initial exchange which creates money in the 
first instance that they have failed to see its vital 
national importance. All debts being contracted 
and expressed in money units they do not under- 
stand the significance of the debt-credit relation 
by which money itself comes into existence. 
The " credit of the nation " is not merely its 
power of running into debt for money to its 
individual citizens, but includes also its power 



of running into debt to its individual citizens 
for actual goods and services whereby money 
itself originates. The fact that the debt owed 
to the citizens by the nation is in goods and 
services and not in money does not alter the sign 
of the transaction. It appears to do so only 
because the vendors receiving new money for 
wealth given up consider themselves paid, whereas 
they are not paid but owed. 

All money given up by individual citizens to 
the nation in exchange for National Debt securities 
belongs as a matter of course to the nation that 
incurs the debt, whereas the goods and services 
given up by them in exchange for paper and 
credit money created by banks was accounted 
by our monetary system, up to the 1928 Act, 
as belonging to the issuer of the money. The 
extraordinary thing is that one would search in 
vain for any law sanctioning this accountancy 
as regards the major part, namely that issued 
as bank-credit. 

A Distinction without a Difference. It will of 
course be objected that the banks do not and never 
have claimed permanent ownership of the money 
they issue. But in practical economics there is 
no longer any important distinction in this 
connection between a capital sum of money and 
the revenue it yields. The owner of a National 
Debt security is really the owner of the annual 
revenue it yields. If this is 100 a year and the 
interest is four per cent it is exchangeable for 


around 2,500, ^ fi ye P er cent f r j(X ooo > an d so 
on. To be in permanent enjoyment of the 
annual revenue is in practice the same as being 
the owner of the capital sum. So it is with the 
2,000 millions or so created by bank-credit 
which yields to the banks an annual revenue at 
a bank rate of five per cent of 100 millions 
a year. Of this they have been in enjoyment 
ever since they issued the money and they still 
show no disposition voluntarily to surrender it 
to the nation. It is a quibble therefore to argue 
that they do not own the money they have created. 
If it were replaced by State money the State 
also could choose whether it received the capital 
sum, or lent it out and derived the interest from 
it whether it incurred with it 2,000 millions 
of new expenditure, or whether it knocked this 
sum off the National Debt and saved the tax- 
payer 100 millions a year. These are only two 
of the many similar ways the nation would be 
the richer for accounting the goods and services 
given up by its citizens for money as the property 
of the nation rather than of the banks. 

To terminate such a situation as now exists 
all that is required is for the public to look at 
money, not as it has so sedulously been instructed 
from the standpoint of the issuer who receives 
goods and services for it gratis, but from the 
standpoint of the user who has first to give them 
up for money before he can get them again. The 
accounting must begin one stage earlier than 


money to cover the transaction by which the 
money originated. If this is done the claim of 
the banks that they are using their own credit 
and not that of the community cannot be 
substantiated. It is true the early bankers thought 
they were, and no doubt they originally were 
when they lent part of their depositors' gold. 
At that epoch the credit of the goldsmiths stood 
higher than that of the government, which thought 
fit, when in need, to appropriate the merchants' 
stores of gold in the Tower without the formality 
of the owners' consent, and thus drove the latter 
to seek a safer " bank ". 

The Vested Interest in Creating Money. But 
when they began lending not gold but promises- 
to-pay gold or, later, under the cheque system, 
cheques, which are claims on the bank for money, 
the banks began to appropriate a credit that was 
not their own but belonged to the community 
which had to give up the equivalent goods and 
services to those to whom the banks extended 
the " credit " in the first instance. Now the 
argument has come round full circle. The 
invention of credit money enabled the banking 
profession to appropriate as its own that part of 
the credit of the community which has been 
termed the Virtual Wealth, and this, involving 
as it does the power of creating money out of 
nothing, could not help proving a most extra- 
ordinarily profitable business which has now 
become a gigantic vested interest. 


Writers on money, from the conventional or 
issuers' standpoint, now argue, for example, 
that the banks are within their rights in times 
of economic depression, when no one wants to 
borrow their money at any price, and they have 
more " cash " than corresponds with the ten 
per cent safe ratio to their total deposits, if they buy 
property belonging to the public with the money 
that they issue, a transaction scarcely distinguish- 
able from the operations of the counterfeiter. 
This is called " Open market operations " 
and, true to banking phraseology, this method 
of acquiring the nation's valuable marketable 
securities by the issue of new money is still 
technically called a " loan ", rather than a theft. 

Open Market Operations. When an ordinary 
citizen buys securities his stock of money is 
decreased, but with the banker it works exactly 
the other way. He increases the quantity of the 
money he issues by buying just as by lending. 
He destroys it again by selling just as by calling 
in a loan. To make this at all intelligible to 
ordinary citizens they must look at it in this way. 
The banking system is now a corporation which 
has a vested interest in the issue of some nine 
times as much money as it holds " cash ", and if 
credit-worthy borrowers have not yet recovered 
sufficiently from being caught in the trap of 
deflation, and are unable or unwilling to borrow 
this issue from them, then the banks are within 
their rights in buying for themselves on the open 


market revenue-producing investments, paying 
for them by their own cheques. These the 
vendors pay into their respective banks creating 
deposits there, until the safe ratio of cash to 
deposits is reached. 

Cash (/). But what now is " cash " ? In 
banking parlance " cash " is legal tender money 
plus credits at the Bank of England. Let us see 
how this worked out in 1932, just after we went 
off the gold-standard and the " monetary policy " 
was directed to raise prices and make the value 
of everybody's money worth less in goods, so 
repudiating part of the nation's debt in goods 
and services to the owners of the money. It began 
by the Treasury arranging with the Bank of 
England and authorizing them to issue 15 
millions more of their Promise to Pay notes, 
under the 1928 Act. The net profit of this issue, 
whatever it may have been, the Treasury 
presumably was paid, and to this extent the 
taxpayer benefited. Then the Bank of England 
increased its " loans " (banking phraseology) 
by acquiring for itself 32 millions of marketable 
securities from the nation, and came into the 
enjoyment of the revenue of interest which they 
yield, paying for them by cheques. Whether or 
not the old lady who overdrew her account and 
sent the banker a cheque for the amount is an 
invention, there is not the slightest doubt about 
this being the normal, natural, and regular method 
of the Old Lady of Threadneedle Street. 


The sellers of these securities in due course 
paid these cheques into their banks, and the latter 
returned them to the Bank of England thus 
increasing their credits at the Bank of England, 
which rank as " cash ", by 32 millions. This 
great accession of " cash " enabled them to 
increase their " loans " by approximately ^267 
millions, much of the increase probably being due 
in the still parlous condition of credit-worthy 
borrowers as yet insufficiently recovered from 
being deflated to " open market operations ". 
So that, between February, 1932, and February, 
1933, they were able to show an increase in their 
" deposits " of nearly 300 millions. After that 
it became rather ruinous to go to Switzerland 
for one's holiday, or to any other country on the 
gold-standard, owing to the " exchange " being 
against us. At the time of writing (1934) the 
pound in countries still on the gold-standard is 
worth about 12$. But the banks between them 
" acquired " some 300 millions of the nation's 
revenue-producing securities or the equivalent 
revenue from their borrowers in so far as they 
may have succeeded in really lending the new 
money they issued in the first year after going 
off the gold-standard. 

Banks now Create Money to Spend Themselves. 
This surely disposes of the last vestige even of 
the excuse that the banks in " assisting " industry 
by fictitious loans are a public service, for having, 
by deflation and suddenly withdrawing their 


" assistance ", put the nation's industries hors 
de combat, in order to reinflate the monetary 
concertina, there being now nobody else to 
" assist ", they have to fall back on assisting 
themselves. The banking system is in fact now 
nothing but a gigantic vested interest in the 
actual issue of new money by methods which 
still evade the law and ruin first creditors and then 
debtors. By the ordinary canons of commercial 
morality there is not a shred of difference between 
creating money to lend to others for interest 
and creating it to spend oneself, and now none 
is recognized either in banking morality. All of 
this was of course accompanied by the usual 
dishonest propaganda intended to distract 
attention from what was taking place. Newspapers 
called attention to the abundant credit facilities 
lying idle and no borrowers, and pointed the 
finger of scorn at those who imagined that shortage 
of money could have anything whatever to do 
with the slump ! 

The Banker as Taxgatherer. The 1928 Cur- 
rency and Bank Notes Act, as indicated in the last 
chapter, has, beyond all doubt since the country 
has gone off the gold-standard, introduced a 
new principle into the British Constitution. 
Before, the issue of bank-notes was strictly 
regulated by law, but as regards the profits of 
the issue the nation made no claim to them. 
So long as they were convertible into gold, the 
banker made himself liable for the issue though 


he gave no security whatever for his solvency. 
Notwithstanding the fact that, stopped by the 
law from issuing notes, he began to lend cheque- 
books to such an extent that it soon became 
physically impossible for him to fulfil his bond, 
and that any attempt to make him do so on the 
part of a small section of the public would have 
plunged the nation into a financial panic, 
mercantile custom, if not the law, still maintained 
the fiction that the banker was trading with 
and using his own credit. 

The 1928 Act, which authorized the issue of 
bank-notes by the Bank of England to replace 
the National Treasury Notes, laid it down that 
the profits of the issue should be paid to the 
Treasury. As we have seen, the issue of any 
form of credit money is a forced levy or tax on 
the goods and services of the community which 
it is impossible for the community to resist or 
escape. Parliament alone has the right to authorize 
and impose taxation, and this Act enables the 
whole constitutional position to be challenged. 
For as regards the relatively insignificant issue 
of notes, Parliament has delegated its powers 
to the Bank of England, which in this respect 
is the authorized but unofficial taxgatherer of 
the Government. For surely, even in law, it is 
not possible to maintain that a tax is only a tax 
when the levy is paid in money tokens, and that 
a levy paid directly in valuables is not a tax. 
For this would be as silly as arguing that a person 


giving up money establishes a credit, but one 
giving up goods and services of equal value 
for money does not. 

Even in 1928 the foregoing was true for all 
the ordinary citizens, though the 1925 Act had 
given money a limited degree of convertibility 
into gold for the benefit of the foreign trader. 
This, however, was removed in 1931. Thus we 
have by Act of Parliament the King's head 
removed from the nation's money and in its 
place a bank's Promise to Pay substituted. Now 
this " Promise to Pay " dates from the days 
when the bank-note was at once the receipt for 
gold voluntarily given up to the bank by its 
owner, and its promise to repay it on demand. 
By making the Bank of England's Promise-to- 
Pay notes legal tender in place of the National 
Treasury Notes, the promise is become a bogus 
promise. The bank-note is now only the authorized 
but unofficial receipt for a national tax collected 
on behalf of the Treasury by the Bank of England. 
The promise of the Bank of England can be 
shown to be bogus by anyone who cares to take 
some of these i notes to the Bank and demanding 
that they redeem their promise to pay "pounds " 
in exchange for them. It is time this lying legend 
was replaced by the true one " Received Value 
worth i ", and it is time this sinister delegation 
of the powers of taxation to the Bank of 
England by Parliament was challenged and 
reversed, and the note signed by the Treasury 


authority responsible, as the original Treasury 
Notes were. 

The Sprat to Catch a Mackerel. But as already 
indicated this is not the real issue at all, which 
is the right of the banks by a book-keeping trick 
to create twenty or so times as much money as 
the amount for which legal tender receipts are 
issued. So long as physical tokens exist it is not 
possible to make them less than zero. But by 
book-keeping this obvious limitation can be got 
round, and in figures it is just as easy to count 
in negative numbers as in positive, and there is, 
then, no fixed number, such as zero, from which 
the counting starts. Money accountancy should 
start from the zero of no money. The real quantity 
of money is perfectly definite, for it is, in units 
of money, the worth of the real things the 
aggregate citizens are owed and entitled to receive 
on demand in exchange for the money. The fiction 
that only legal tender is " really " money, 
and that cheque accounts are not money but 
claims on demand to be paid money, does not 
in the least affect the quantity of goods the 
citizens have given up for it and are owed on 
demand. The cheque system preserves the 
zero of no money for legal tender or physical 
tokens, but extends the accountancy to an 
indefinite and continually varying extent below 
zero into the region of minus quantities, or debts 
of the banks for non-existent money. Making 
banks keep pound for pound of national money 


tokens against their liabilities to their current 
account holders would at once stop this fraudulent 

Banks Give no Security Whatever. It is the 
strangest perversion of common justice that 
whereas the banks' borrowers have to deposit 
with the banks valuable securities, in the way 
of the title deeds to houses, farms, factories, 
or investments, amply sufficient to cover the 
eventuality of their default, the banks, trusting 
no one, themselves give no security whatever 
of any kind to their depositors. In the one case, 
when it becomes impossible for the creditors 
to fulfil their bond they are sold up and bank- 
rupted. In the other case the banks are granted 
a moratorium and sufficient national money 
is then printed to enable them to avoid ruin. 
The pound for pound of national money would 
be the nation's security for their solvency and it 
could be issued to them as required, against 
suitable collateral security in the way of the 
banks' assets to cover the loan. But as a matter 
of fact the mere substitution of a national money 
for the present fraudulent private money system 
would produce such an almost instantaneous 
increase in real national prosperity that it would 
not be long before industry and agriculture got 
out of debt to the banks and were able to create 
and accumulate their own capital without the 
aid, for the most part, of either genuine or 
fictitious loans. 


The Time-Element of Money. The philosophy 
of money here expounded, regarded in a strictly 
scientific light, may be said to put the difference 
between barter and monetary systems in the 
time-interval, that distinguishes the latter from 
the former, between the giving up of one kind of 
property and its repayment by another. Money 
may be considered intermediate repayment, but 
this does not quite cover the point, which is 
essentially one of time. If, in scientific fashion, 
we imagine the time-interval continuously reduced 
to zero, from a monetary system we arrive at a 
barter system, and the point is that this is not 
possible. If we make the mistake of supposing 
it to be so, it would be the same as supposing 
a community exchanging by barter in which as 
soon as one kind of produce were ready for use 
or consumption an exactly equivalent worth 
automatically appeared in the same place and at 
the same time of the kind the producer wanted 
in exchange. Whereas, as we know, there are 
such considerations as seed-time and harvest in 
the case of agricultural produce and their equiva- 
lents in industrial production, as well as that the 
producer never knows accurately what his needs 
will be in the interval between them. Money 
bridges this gap because it gives the means of 
obtaining continuously what is needed for use and 
consumption, irrespective of the spasmodic nature 
of production, or, by custom, of payment (wages, 
salaries, dividends) for engaging in production. 


The Circulation of Money. Orthodox econo- 
mists seem to ignore the technical and biological 
processes for the creation of wealth, and the 
principles regulating its consumption and use, 
in their almost exclusive concern with the entirely 
subordinate function of exchange or commerce, 
against which Ruskin in his day railed in vain. 
Here, as he expressed it, " for every plus there 
is a minus ", one party to the exchange merely 
giving up what the other gets. They tried in the 
so-called " quantity theory of money " to make 
the exchange value of money depend inversely 
on its quantity " in circulation " and directly 
on its " velocity of circulation ". Their attempts 
to determine the first came up against the almost 
insuperable difficulty in a privately-issued money 
system of being sure exactly what the quantity 
in existence at any instant might be, let alone 
the quantity " in circulation ", and they were 
dependent for this on such figures as the banking 
profession might wish the public to believe, 
besides unintelligently following the bankers' own 
methods of arriving at the information. These 
appear to be radically at fault, as still to be gone 
into, in slumping together current account and 
time-deposits, and slurring over the distinction 
between them. As regards the second, they 
seem to ignore the time-factors in production 
which it is the function of money to bridge, and 
they wrote as if it were the velocity of circulation 
of money which determined the rate of creation 


of wealth rather than the latter being the essential 
factor to which the circulation of money must 
conform. The mere fact of money changing 
hands, altering from moment to moment the 
identity of the individuals with money and without 
goods or with goods and without money 
commerce in brief, including in the term all 
stock exchange, real estate, and other transactions 
involving the exchange of finished property 
is not circulation at all. That term should be 
confined to the payments as above for engaging 
in production, the return to the production 
system of the money so paid out, in exchange 
for the product, and its passage through the 
production system until it is paid out again and 
the circle completed. 

It is not necessary to consider this old " quantity 
theory " of money farther than this, because 
enough has been said to show that it is really 
a fraud. In practice neither of the two factors 
supposed to determine the exchange value of 
money were known, but only their product, 
and this by definition was simply the total money 
exchanged for goods per year, or " the volume 
of trade ". Dividing, in this, the quantity of 
money by the quantity of goods gives the average 
price of goods, or the price index, a purely 
statistical figure which is not dependent on any 
theory at all. It may be stated at once that no 
quantitative theory of the value of money can 
possibly apply when the quantity of money in 


existence is being arbitrarily varied, created 
possibly to allow people to gamble with on 
margins in the Stock Exchange, possibly with- 
drawn from production for the purpose, and again 
possibly not. It is like taking seriously a set of 
statistical figures over a period, in which the units of 
reckoning were never the same from one moment 
to the next, or a set of measurements with some- 
one arbitrarily altering the calibration of the 
measuring instruments to make them always 
read wrong. 

The Value of Money or Price-Level. By regard- 
ing money as essentially credit in the first instance, 
the quantity of money is simply the quantity of 
goods and services with which its owners are 
credited, that is voluntarily going without, and 
that we call the Virtual Wealth of the community. 
Itself it is a quantity, not a rate like the volume 
of trade, and, without any complication at all, 
the exchange value of money is the Virtual 
Wealth divided by the quantity of money, and 
the price index or price-level is proportional 
to the reciprocal of this. It can only change (i) 
by virtue of there being more or less money in 
existence or (2) by virtue of the community, in 
the sense of the aggregate of its individual 
members, electing to go without and be credited 
with less or more goods. The first is the physical 
quantity and the second the psychical quantity. 
The latter depends on the number of individuals 
in the community and on their business and 


domestic habits and customs, which are conserva- 
tive. It is inconceivable, if the quantity of money 
were reasonably constant, that the Virtual Wealth 
could be subject to any violent change whatever, 
except by some far-reaching natural or human 
cataclysm. In so far as the quantity of money 
in existence violently and suddenly changes, 
it produces violent repercussions on the standard 
of living and general prosperity, and upon the 
amount of goods and services people can afford 
to abstain from. But since the cause of this is 
purely external, arbitrary, and preventable, there 
seems no reason for discussing it and so 
over-elaborating the simple conception given here. 
It is rather the purpose of this book to apply it 
to a genuine money system using physical tokens 
regulated in amount to keep the price-level 

Some Monetary Factors. But to bring the 
conception into simple relation with the time- 
interval which it is the function of money to 
bridge, between the giving up of one kind of 
property and its repayment by another, it is 
necessary to know, besides the quantity of money, 
only the " volume of trade " or total money 
exchanged in the year for goods. If we call this 
{y and the total quantity of money Q, then 
Q\V is the time-interval required, namely the 
average time each unit of money is kept before 
it is spent. Let us suppose the volume of trade, 
in the sense defined, is taken as given sufficiently 


accurately by the amount of bills, cheques, etc., 
annually cleared by the Bankers' Clearing Houses. 
This was in 1928 44,200 millions. The quantity 
of money in current accounts in these banks for 
that year is stated to have been 1,026 millions. 
Hence so far as this part of the money is concerned 
the average time-interval between spending is 
rather more than one forty-fourth of a year, 
or eight days eight hours. Probably something 
like this period is true for money in general over 
the whole cycle of production and consumption. 
What it may be for each half separately can only 
be guessed. The time of one complete circulation 
is the product of this average interval and the 
number of exchanges in both halves. If it is 
correct that the national income was then about 
^4,000 millions the average number of exchanges 
in the complete circulation is about a dozen. 

In any case it is important to notice that this 
interval is a derived or secondary quantity, not 
in itself as informing as the fundamental concep- 
tion of Virtual Wealth. The latter is measured 
by the quantity of money in existence divided 
by the price index, and this again, divided by 
the population, gives the average quantity of 
wealth (in money units reduced to the price- 
level taken as standard) which each individual 
of the community is voluntarily preferring to 
go without in order to own money. If the value 
of money in 1914 is taken as the standard (price- 
level = 100), it was in that year a little over 20 


worth, and the quantity of goods and services 
this represents probably varies comparatively 
little however the price index may vary. 

These figures, though they are only given 
as rough indications of the orders of the quantities 
in question, appear to be very much as might have 
been guessed from other considerations. 

A Grain Currency. Man does not live by bread 
alone even in an economic sense, but let us suppose 
for simplicity that he does, and consider a self- 
contained community producing and consuming 
its own grain, harvested, say, in September, and 
call the harvest H in worth of money units 
of constant purchasing power. Then, neglecting 
the complication of the relatively small amount 
of grain that has to be always reserved for next 
year's sowing, and assuming consumption to be 
at a uniform rate, the quantity of grain always 
in existence as a minimum must be FH where F 
is the fraction of the year still to run before 
harvest. Thus F is o just before and i just 
after harvest, in March |, in June J, and 
so on. Now suppose a simple money system 
to distribute this harvest in which the government 
issues H units of money to buy it in September, 
and sells it again throughout the year. Then, 
just before harvest, the community have no 
money and no grain, just after reaping, H of 
grain and no money, and, just after selling it, 
H of money and no grain. This well illustrates 
the spasmodic character of production which it is 


one of the functions of money to bridge. By March 
the government have | H both of money and of 
grain, and the community -| H of money, 
by June the government have f H in money and 
J H grain and the community J H of money, 
and so on, the quantity of money in the pockets 
of the community always equalling in value the 
stock of grain in the government's granary. 
Note, especially, that the government has only 
to issue H units of money once, not every harvest ! 
It is of interest that something like this simple 
system exists as regards the distribution of grain 
in Latvia, the issue, called Treasury Notes, 
being 104 million Lats (i Lat = i Swiss franc, 
now about fifteen to the pound) and the other 
money being about thirty-six millions of paper 
and coin and fifty-seven millions " bank credit ", 
with a gold base of forty-six millions, in Lats. How 
infinitely better this is than when the government 
does not issue money and the producers before 
harvest are always in debt for some part if not 
the whole of the harvest which when reaped 
repays their debt, and leaves them again in debt 
during the whole or part of the period before the 
next. The essential physical fact is that there 
must always be FH of grain in existence, or 
the community will go short or starve before the 
next harvest, and that fact is not altered by bank 
finance, the sole social purpose of which is to 
keep the producers of wealth in debt so as to 
ensure that they work hard to repay it and do not 


slack. That may or may not be an economic 
necessity but, if so, they should be in debt to 
themselves, and that is what money really is 
and what it does, whoever issues it. 

Economizing in the Use of Money now Fallacious. 
It is the irony of the situation that the methods 
invented by the old banker to " economize in 
the use of gold for currency ", by creating money 
without any gold, ought now to be used by the 
State to economize in the need for the banker (in 
the modern sense of minter) if the State is to 
continue to exist except as the perquisite of the 
minting profession. The idea of economizing 
in the use of currency dates from the days when 
it needed a long and precarious search for the 
precious metals costing on the average probably 
much more than they were worth. The very 
opposite obtains now that we understand that 
gold and silver money only embody in a crude 
and elementary form the principle of Virtual 
Wealth. Money is a debt owed the owner 
by the community. The issuer of money fades 
out of the picture with the goods and services 
he obtains for nothing by the issue and, much 
as he may pretend he is liable for the issue and 
the repayment of the debt, the debt is never and 
never can be repaid, but in a scientific age goes 
on increasing and circulating through the 
community, exchanging their goods and services 
for ever after. 

We may still learn much from the foregoing 


illustration as to the nature of any money system. 
As regards the point that there is always just 
as much wheat in the state granaries as there is 
money in the pockets of consumers, many mone- 
tary reformers have averred as a self-evident 
proposition that there always ought to be as 
much money in existence as there exist goods 
and services awaiting sale, and we shall have to 
comment on this proposition later. But first 
notice that, on the average, one-half of the grain 
money, rising from zero after harvest to H just 
before the next, is always lying in the govern- 
ment's coffers, " idle and barren " as the old 
bankers would have bemoaned, but really for 
the simple reason that there is then no grain to be 
had in exchange for it. 

Money Tokens or Book Credit ? Now, so far as 
concerns a state service of this character, it is 
clear that the government instead of keeping the 
money returned to them during the year might 
as well burn it as received, to avoid the risk of 
loss during keeping, and issue a new lot every 
autumn. Or, in terms of book-keeping instead of 
counters, it could issue a credit of H to the 
producers for their harvest, and, as the grain 
is bought back from them, cancel the credit. 
This involves a new issue of credit every harvest 
and its destruction throughout the year instead of 
a single issue of permanent money once for all. 
In this particular instance the credit accountancy 
is even truer to physical reality than the 


since the credits correspond always to the 
unconsumed grain and there is no money lying 
" idle and barren ". But it is absolutely essential 
to notice that, if the grain were not in effect a 
government monopoly but was being bought by 
wholesalers in the ordinary way of business in 
an individualistic society, they could not afford 
to cancel the credits as they resold their grain, 
for the simple reason that they have not the power 
to re-create them next harvest. That is possible 
only for a government conducting the marketing. 
It is possible for banks because they usurp the 
prerogative of governments in issuing and 
destroying the credit of the community for goods 
and services given up by them. The usurpers 
charge interest for getting people into their 
debt, whereas all democratic governments would 
issue money to keep people out of their debt if 
they knew the elementary rudiments of their 

These remarks may also serve to illustrate 
the different starting points of two schools of 
monetary reformers ; those who want genuine 
permanent national money issued by the state 
after the increase of production is ready for 
distribution, solely according to statistical regula- 
tion, to maintain the price-level constant, without 
any other let or hindrance whatever ; and those 
who look rather to a modification and extension 
of the system of issuing ad hoc credits for definite 
production purposes, the credits being destroyed 


and re-created again at each round of the cycle 
of production and consumption. 

The reasons why the former system is preferred 
in this book are many, but the primary reason 
is that a system that must use some form of 
physical counters is so much less easy to falsify 
than one of book-keeping. Also, as already 
indicated, until some such open and unobjection- 
able system is reverted to, and full statistical 
experience of it made known, there are many 
simple questions, such as the correct quantity 
of money for a given rate of production and 
consumption, that cannot really be answered 
definitely, and which, indeed, it seems to be the 
object of the present system to make unanswer- 
able. Men do not live by bread alone, even in 
the economic sense, and in modern industrialized 
communities at least, but also to an increasing 
extent in modernized agriculture, there is a 
fairly constant flow throughout the year, through 
the whole cycle of production and consumption, 
of payments for raw materials, intermediate 
products, and services in production, balanced 
by equal payments for the finished products 
or for reinvestment. Even though production 
as in the illustration be spasmodic, men do not 
live by fits and starts. Though in the initial 
days of credit money, one of its functions was to 
facilitate the increase of production, now it is 
the other way and the problem is to distribute all 
that men are already able to produce. 


these circumstances particularly there seems no 
reason at all why money should not be permanent 
and physical, thus avoiding the risk of dishonest 
accountancy that can so easily occur where money 
is being continually destroyed and re-created. 

Should Money Lending now be Permitted? 
The next point of interest is that, though the 
Government, when it receives back the money, 
cannot use it to buy grain because there is then 
no grain to buy, there is nothing to prevent 
the producer, when he receives it at the harvesting, 
from lending part of it at interest for part of the 
year to someone else, who would not borrow 
were he not desirous of spending. Confining the 
consideration still to money issued in a self- 
contained community for the purpose of marketing 
a single commodity, grain, it is equally clear 
that the only grain the borrower can buy is that 
which the lender will himself require later on in 
the year, and if the borrower consumes it, so 
that it may not " lie idle in the granary ", the 
lender cannot get it back when he wants it. All of 
these simple considerations may serve to raise 
the broad question of the physics, if not the 
ethics, of money-lending in general, in contra- 
distinction to genuine investment, when the 
investor in effect spends his money and can only 
get it back by finding someone else willing to 
buy his investment from him. There is a growing 
school of sociological thought, following the best 
traditions of medievalism, against money-lending 


as such, in which the lender takes no risk, as he 
does when he sinks his money in a genuine 
enterprise with the success or failure of which 
his own fortune is bound up. 

The more one thinks over it the more it seems 
as though even genuine money-lending, pure 
and simple, however essential it may be to 
preserve it in the transitional stage to the new 
era in order to avoid too great and sudden 
interference with commercial habits and ideas, 
would even now under a properly worked pure 
credit-money system be a retrograde redundance, 
undoing with one hand what is done with the 
other. Money is itself a debt of goods and services, 
and outside of the question of securing specific 
objects such as to enable an exceptionally enter- 
prising and capable individual more quickly to 
arrive at opportunities of social usefulness lend- 
ing money is merely creating a new private money 
debt between individuals which, if the physical 
circumstances were such as to justify the creation 
of the new debt, ought rather to be met by the 
issue of new money. For no one borrows money 
to hoard but only to be able to consume, normally, 
of course, for the purpose of putting into pro- 
duction new wealth which will only be ready for 
consumption or use at a later date. A money 
debt thus usually takes out of the market just 
the same amount of finished wealth as if the owner 
had himself spent his money and consumed 
what it bought, while owing to the prevailing 


laxity in these matters he feels quite at liberty 
to call in the loan and again consume what the 
borrower has already consumed. 

Physical Absurdity of Short Term Lending. 
Whatever may be thought of loans of money for 
definite long periods, covering the reproduction 
of the wealth the borrower consumes, when he is 
in a position to restore wealth to the system before 
the original owner of the money recovers his 
money and can take it out again from the system, 
the practice of lending money on call or short 
notice is physically idiotic and should be stopped. 
It is merely a mathematical and not a physical 
possibility, due to the variable minus quantity 
from which the quantity of money is now reckoned, 
which the use of physical counters would make 
impossible. Because then it would not be 
possible, as it is now, for the owner to recover 
again his money without someone else giving 
it up. Repayments must under such circum- 
stances balance new lending, whereas it is not 
too much to say that the very object of the 
existing system is to escape this limitation imposed 
by ordinary common sense. 

Current Accounts and Time-Deposits. This may 
serve to reintroduce the point deferred from 
the last chapter as to the essential difference in 
correct accountancy between current accounts 
and time-deposits, which it has been the practice 
of the banking system to slur over and slump 
together. The sum of the two, or " total deposits ", 


represents the money the bank owes their 
depositors on demand or short notice. When 
a client transfers money from a time-deposit to 
a current account it makes no difference to the 
" cash " to credit ratio, and it would appear 
that some of the worst falsifications of the mone- 
tary system arise from this quite unjustifiably 
loose procedure. Although a time-deposit is 
nominally only recoverable by the owner on due 
notice, even the stipulated period is usually not 
insisted upon. At the worst the bank would 
merely charge a " discount " for refunding the 
money without notice, unless itself in diffi- 

Whereas it is clear that if a depositor is receiving 
interest on his deposit from the bank, the bank 
is only paying it because itself it has lent it to 
some borrower, presumably at a higher rate 
of interest. The money is no more in the bank's 
possession than the gold belonging to the depositors 
remained in the goldsmiths' safe when they 
lent it out at interest. If money is defined as 
the debt of goods and services owed the owner 
of money on demand then, to arrive at the total 
quantity of money in existence, we must not add 
together the money in current accounts and 
in time-deposits, but reckon the former only. 
The money in the time-deposit has been lent 
out by the bank, which is paying the owner 
interest for doing so, and it either appears in 
someone else's current account or time-deposit. 

If in the latter, then the same consideration 
applies to the new as to the original time-deposit. 
That is to say, in order to arrive at the total 
money in existence only the current accounts 
must be reckoned. This assumes, as is customary 
in this sort of rough and ready reckoning, that the 
money outside the banking system altogether, 
in the hands of the public as physical tokens, 
does not change, but it is in any case too small 
a proportion of the whole seriously to invalidate 
the conclusion. 

How the Banker Avoids his Own Trap. It would 
seem probable that it is by this method that the 
truly frightening destruction of money that has 
been going on since the deflation policy of 
the Cunliffe Committee was started has been 
concealed. By slumping together the two kinds, 
the " Deposits " that alone are given in the 
banks' balance-sheets do not appear greatly 
diminished. Figures it is true have been published 
latterly that would make it appear that the ratio 
between current accounts and time-deposits has, 
since 1919, only changed from the ratio 2 to i 
then to i to i now. But they appear faked. So 
far as their source can be traced they appear 
to come from a table published in the Macmillan 
Committee's Report. Certainly in 1922 the 
statistician, H, W. Macrosty, complained that 
these important figures were not published by the 
British banking system, and he estimated the 
ratio as then 5 to i, as for the eight hundred chief 


banks of the Federal Bank System of the United 

However this may be, it would appear that 
the present i to i ratio is the lowest it is possible 
to bring it to. Since the banks dare not destroy 
the money actually lent to them by their depositors, 
or they would themselves be caught in the trap 
which those to whom they have lent money are 
caught in. These " time-deposits " can be 
demanded by their owners at short notice, and 
for a i to i ratio, since the money in current 
accounts give the aggregate in existence, they 
can, except by re-creating again the money 
destroyed, only be paid by transferring the whole 
of the money in existing current accounts into the 
current accounts of the owners of the time- 
deposits. The i to i ratio arrived at by deflation 
means that the banks have left just enough 
money in existence to meet this liability, and if 
this interpretation of the situation is correct, then 
it would appear that practically all the rest of 
the money in existence has been destroyed in 
their frenzied efforts " to crucify the country on 
a cross of gold and glut ". 



Money Embroils the Nations. The system 
that has grown up could not have survived 
so long, or have remained so long camou- 
flaged as the opposite of what it really is, 
but for the complication introduced into the 
problems by international economic transactions. 
Viewed from the standpoint of a single self- 
contained community, the gold-standard involves 
an almost self-evident contradiction. It is a 
system in which money was supposed to have 
been kept of constant value with reference to 
gold and in which the manner of issuing new 
money was such that it necessarily reduces in 
proportion the value of the rest. For since there 
are no more goods and services on sale than 
before the issue, what is on sale is divided among 
more money units, so that each becomes worth 
proportionally less, and the new issue merely 
dilutes the value of the old. In practice, this 
fundamental contradiction resolved itself into 
its two parts or phases the inflationary period 
when the price-level was being forced up by 
new issues, and the deflationary period when it 
was being forced down again by the destruction 



of money. The intermediate stage, the draining 
of gold out of the country as the one type of 
commodity arbitrarily prevented from rising in 
price, so reducing the " cash to credit " ratio, 
is the stage that brings in the international aspect 
of money. Bad money at home embroils the 
nation's affairs abroad. 

International Banking. As the inevitable 
inconsistency underlying their system became 
familiar to the banking profession in different 
countries, there grew up a corresponding system 
of international banking, working hand in glove 
with the internal banking systems, to the mutual 
benefit and security of both. They thus extended 
the area of their operations to that of the whole 
civilized world, and made it much easier for them 
to escape detection and punishment. Whereas 
internal banking plays off in turn the debtor and 
creditor classes within the community and keeps 
them in perpetual strife and poverty, international 
banking plays off the poorer country against the 
richer and, by reducing the latter to the level of 
the former, is the real agent fomenting and 
perpetuating the aggressive nationalism out of 
which international conflicts arise. Money, the 
lenders say, must find its own level. In doing so 
it drags down to the lowest level the standards of 
living both of individuals and of nations. 

In the inflationary stage, the export of goods 
is rendered difficult and unprofitable, owing to 
the high prices and the abundance of purchasing 


power in the home market. Whereas the import 
of goods, to correct the shortage of finished wealth, 
resulted from its having been handed over gratis to 
producers to sink in future production, is favoured 
because of the high prices in the home market, 
and the possibility of obtaining from abroad 
goods at the same price as before by the use 
of gold. In the deflationary stage the opposite 
obtains. The destruction of money and calling 
in of loans curtails employment and reduces the 
purchasing power of the community concurrently 
with the arrival on the market of the abundance 
of goods still in course of production, and there 
is a catastrophic fall of prices. Import from abroad 
is prevented and, instead, the goods that cannot 
be sold at home through the destruction of the 
medium of exchange are rushed to the ports for 
shipment abroad at any price they will fetch. 

Money at Call and Short Notice. In the first 
stage, the banker's loans are in demand at home, 
but in the second, having called in his internal 
loans, he has lending power to lend, and his 
revenue in the form of interest is drying up. 
It is at this precise moment that the demand 
arises for loans to finance the export trade. In 
this situation, therefore, the business grew up of 
lending money at call and on short notice to 
the international bankers financing the shipment 
of cargoes being exported and imported, on the 
security of these cargoes. Clearly money created 
for this sort of transaction, essentially transport, 


can be very much more quickly recalled and 
destroyed than that sunk in production. By 
dividing the business into long term lending, 
and lending on call or short notice, and by 
increasing the ratio of the first in the inflationary 
period and of the second in the deflationary 
period, the internal bankers contrived to extract 
a more constant revenue by lending out the 
Virtual Wealth of the community, which, as 
regards the second source, they shared with 
the international bankers. Of the main items in 
a bank balance-sheet, on the assets side, " Money 
at Call and Short Notice " and " Bills Discounted " 
refer mainly to the international lending market, 
" Advances, Loans, etc." to the internal loans, 
and " Investments " to what the banks have 
bought with the money they create for themselves 
under open market operations. 

How the International Banker Rules the World. 
By alternately lending and withdrawing loans 
at home and withdrawing and lending them 
abroad, the internal and international bankers 
played into each others' hands, keeping the whole 
world in a continuous ferment, and internal 
price-levels always on the move. But in this 
sordid game the international banker soon learned 
that he had the whip-hand, and could absolutely 
control the situation and force the internal bankers 
to follow his lead. For by lending at any time to 
a country under circumstances which make it 
more profitable for that country to take the loag. 


not in the form of goods but in gold, with which 
to buy in a third country what the loan is really 
required for, he could drain the gold out of each 
country in turn. So he could enforce deflation 
and a break of prices leading to prolonged 
economic depression there, until its workers 
were reduced to a more humble and less indepen- 
dent frame of mind. The gold-standard became 
not so much a device for forcing back, after 
inflation, the monies of all countries adopting 
it, and for maintaining their constant relative 
exchange value, as one for forcing down wages 
and prices in all countries to the level of the 
poorest and most backward. 

It will be the main purpose of this chapter to 
try and clarify some of the excessively complicated 
consequences of what is euphemistically termed 
banking in the international sphere. From the 
standpoint of the professional money-lender, 
and from his alone, prosperity is a curse. His 
trade is debt, his object its creation, and his 
supremacy over the creators of wealth depends 
on the trick that his loans being fictitious they 
can never be repaid. National frontiers now alone 
bar his world dominion, so that those too must 
go down. 

Money is National not International Debt. The 
first consideration about international economic 
transactions is that the money of any one country 
only has meaning in that country in which it is 
Jegal tender, or can be at demand converted 


into legal tender, for the payment of debts. It is 
a debt of that country alone, or a claim on its 
marts and not upon those of another nation. 
For the exchange ratio to remain at any definite 
figure without gold flowing from one country 
to another, in each country the value of the sales 
of its own money for the other country's money 
must be always the same as the value of its sales 
of the other country's money for its own money. 
Thus if the par of exchange between England 
and Germany was, as before the War, about 
twenty marks to the pound, 100 can only be 
changed for 2,000 marks if some one else wants 
to change 2,000 marks for 100. If only 1,800 
marks for 90 were offered, then the difference 
10 can only be exchanged for marks by buying 
200 marks with gold. Failing that, the 1,800 
marks became worth 100 or the exchange falls 
from 20 marks to 18 marks to the pound. 

The second consideration has to do with the 
exchange of goods. Here for the foreign exchange 
ratio not to vary and gold not to flow, any excess 
value of imports over exports must be balanced 
by the country receiving the excess (i) owing 
for them, that is contracting a new debt as regards 
the rest of the world, or (2) being already owed 
them and in receipt of interest payment or capital 
repayment for debt contracted previously by 
the rest of the world to it. If exports balance 
imports (or in so far as this may be the case) 
they are settled by the importer in each several 


:ountry paying the exporter of his own country 
in his own currency. An elaborate system of " bills 
3f exchange ", bill-brokers, accepting houses, 
discount markets, etc., explained in technical 
works on money, enables this to be done. The 
technicalities, being concerned with the means 
by which it is done rather than the actual purpose 
achieved, need not here detain us. 

In order to simplify the complicated question 
of international economic transactions, the two 
propositions will now be discussed more in detail. 
It is only outside of these simplifying propositions 
that complication arises. Both reduce the problem 
to one as between a single country and the rest 
of the world taken as a whole in order to avoid 
having to consider the innumerable cases that 
would arise if we considered all the countries 
in pairs at a time, as of course applies to the 
actual transactions. The discussion is concerned 
to distinguish the type of transaction that has no 
effect on the stability of the foreign exchanges 
from those which disturb them. 

Importers Pay Exporters of their Own Nation. 
The second proposition is usually taken for 
granted but it is well to state it precisely. It is 
that in any country in so far as the value of its 
imports is offset by the value of its exports, 
in its dealings with all other countries for which 
the same is true, the trade is really barter and 
does not necessarily involve any exchange of the 
monies of the countries at all. In each country 


the importer really pays the exporter in the money 
of that country. The simplest case is when two 
countries only are concerned, for example 
Britain exporting herrings to the U.S.A. and 
the U.S.A. exporting the equivalent value of 
tractors to England. If the British importer of 
tractors pays the British exporter of herrings 
and the American importer of herrings pays the 
American exporter of tractors, each in their 
respective currencies, the accounts are squared. 
The next most complicated case would be a 
triangular one with, say, equivalent values of 
herrings exported by Britain to Russia, of 
platinum by Russia to the United States, and of 
tractors by the latter to Britain. If we imagined 
each importer remitting his own money in pay- 
ment of the import, Britain would have Russian, 
Russia would have American, and America would 
have British money to exchange each for its own. 
If one country, say Britain, took the initiative, 
and sent its Russian money to Russia in exchange 
for their American money, it could then send 
the latter to America in exchange for British 
money, and all would be satisfied. This is what in 
effect is done under the bill-of-exchange system. 
The bill-of-exchange is a sort of reversed cheque, 
issued by the receiver of the money and endorsed 
or accepted by the payer. It is in effect an I.O.U. 
which is exactly of the same nature as cheque 
money if immediately payable on demand (a 
" sight-draft "). But usually it is payable within 


three or six months from acceptance. " Discount- 
ing " such bills means creating now the money 
that the acceptor of the bill will have to give up 
later when it falls due. This is as much a creation 
of money, followed by its destruction when the 
bill is honoured by its acceptor, as the ordinary 
bank " loan ". We are not, however, now con- 
cerned with this aspect, though it makes chaos of 
international trade relations. 

The Balance of Trade. The foregoing proposi- 
tion applies to any number of countries however 
interlaced the exchanges of goods and services 
may be, so long as in each the value of the 
imports equals that of the exports. Or to put it 
the other way, international trade and commerce 
can only be carried on without complications, 
as simple barter, when this condition obtains. 
But if it does, then it is clear that there can be no 
imports without equivalent exports and instead 
of the interests of exporters and importers being 
opposed they are the same. Literally, in each 
country the first are paid by the second. But if 
one of the group of countries imports more than 
it exports, for example if Russia imports more 
herrings from Britain than are equivalent to the 
platinum it exports to America, it must be cut 
out of the group altogether. For, in the illustrative 
case of each importer paying the exporter in his 
own currency, there would not be enough 
American money in Russia to exchange for the 
Russian money in Britain, In the simplest case 


the Russians would have to make up the deficit 
by sending gold in exchange for their money. 
All of this is quite simple to understand from 
the standpoint of money as a debt instantly 
repayable in goods and service on demand in 
the country in which it is legalized (or can at will 
be converted into legal tender), but entirely 
meaningless outside that country. The whole 
is an illustration of the cancellation of the mutual 
inter-indebtedness of nations, which modern 
money itself effects between individuals of one 
nation. The cheque system, as it operates in 
a single bank, is an example as between the 
clients of that bank, and, as extended by the 
Clearing House system, as between all the clients 
of all the banks. In every case it is only the 
unbalanced residuum that matters. 

Effect of Loans and Repayments. The proposi- 
tion can be widened to include the case of loans, 
extended say from country A to country B and 
repaid, either interest or capital, by country B 
to country A. We may term the latter interest 
repayment and sinking fund repayments, for 
brevity, loan service. Then the proposition is 
still true if, in each country, the difference 
between the values of exports and imports can 
be accounted to loans and loan service. The former 
will increase exports without corresponding 
imports, and the latter imports without corre- 
sponding exports. Thus consider a loan from 
country A to country B. A in effect puts B in 


possession of power to buy in A goods and 
services, and if B exercises this power A's exports 
to B are correspondingly increased without any 
corresponding imports into A from B. So with 
loan service, B repaying its loan, or interest on it, 
in effect puts A into possession of power to buy 
in B goods and services, whereby imports come 
into A from B unbalanced by any corresponding 
exports. In so far as this extended proposition 
applies to each nation severally of a group of 
nations, then still, however interlaced and various 
the relations between the several countries, the 
international traffic proceeds without any flow 
of gold and with no disturbance to the foreign 
exchanges. This is not to deny that these may 
still take place through other factors, such as 
tourists and others taking or sending money to 
be spent in other countries. Conversely, in so 
far as it is not true of any one of the nations, 
its transactions must be cut out from those of 
the group under consideration, and its accounts 
with the others can only be squared either by 
gold movements, exchange fluctuations, or other 
countervailing factors. If all the countries are 
on the gold-standard then there will be a flow 
of gold from those countries whose imports 
exceed exports into those whose exports exceed 
imports, reckoned in the manner as extended 
to include loans and loan service. If there is no 
gold-standard, the exchange will go against the 
former in favour of the latter. 


The Foreign Exchanges. It may be useful to 
consider a simple case of the latter. Suppose 
no attempt is made to affect the exchange between 
two countries, either by speculators or others 
holding foreign currencies in preference to their 
own, or by tariff and bounties. Then the imports 
and exports, apart from those paid for by loans, 
loan service, or other direct imports or exports 
of money, must be of equal value, whatever 
their relative amounts. To take the first case 
again, the British importer of tractors has 
pounds to pay the American exporter who 
wants dollars, and the American importer of 
herrings has dollars to pay the British exporter 
who want pounds. The exchange ratio between 
pounds and dollars means and is absolutely 
determined by how many dollars are obtainable 
for i. Before anyone in England can exchange 
his pounds for dollars, someone in America 
must possess pounds to exchange and want 
dollars instead. The exchange of monies is pure 
barter applying to the two kinds of money exactly 
as to any two different kinds of commodities, 
and the exchange rate is simply the ratio between 
the quantities of each offered and demanded. 
The only difference is that normally money has 
a homing instinct and each kind tends to return 
as quickly as possible to the place of its origin, 
where alone it is a legal claim for wealth and 
can always and instantly be exchanged for it. 

It is not possible in international commerce 


to cross the frontier and to replace a debt for 
the goods and services of the one country by 
a debt for a similar value of goods and services 
of the other. The debts, that is the monies, must 
be exchanged, and, before anyone can change 
foreign money for his own kind, someone else 
simultaneously must want it and give up the other 
kind for it. It is only within the jurisdiction of 
one country that the banking system can create 
money like a conjurer producing rabbits out of 
a hat, and then destroy it again. People may think 
our bankers are singularly unprogressive in as 
yet not having created an international currency 
apart from gold, but such people are usually 
more concerned with their own comfort and 
ability to travel about from one country to another 
than with anything so entirely beyond their 
comprehension as this aspect of money. It 
would be but small compensation to America 
to have to give up on demand for international 
money, say, a house to a British subject, because 
the latter used to have a house in Britain but had 
exchanged it with another Briton for the money. 
Gold-Standard Drags all Nations down to Level 
of Lowest. The ostensible object of a number 
of countries uniting in making their monies 
convertible into gold, that is adopting the gold- 
standard, was simply to facilitate the accountancy 
between nations. For if, as in the preceding 
example, Russia exports less platinum to the 
States than Britain exported herrings to Russia, 


the difference is made up by a shipment of gold 
from Russia to Britain, and the accounts were 
squared. But unfortunately in practice correct in- 
ternational accountancy under the gold-standard, 
operating with the entirely false accountancy 
within the nations severally, where money was 
arbitrarily created and destroyed at will, came to 
mean that each nation was in turn frustrated 
and brought back to the standard of living 
prevailing in the poorest and most backward. 
So long as a loan from one country to another 
is a loan of goods and services, and repayment 
is also in the form of goods and services no gold 
drain results. The citizens of the debtor country 
are empowered to indent on the marts of the 
creditor country in the one case, and the citizens 
of the creditor country on those of the debtor 
country in the other. No money passes the 

Now it is of the nature of the case that the 
countries that lend are richer and more highly 
developed than those which borrow in the 
monetary sense. But it is almost equally of the 
nature of the case, when we use the words rich 
and poor in the original sense of wealth or well- 
being, that costs of production will tend to be 
higher in rich countries than in poor. At first, 
of course, as in the acquisitive Victorian epoch, 
scientific methods of production, in exposing 
the worker to the direct competition of the 
machine, cheapen these costs. It was this which 


enabled Britain to become the factory of the 
whole world. But, as such methods become 
general and all nations become equipped with 
the same labour-saving plant, the cost of pro- 
duction will tend to be lowest where wages are 
lowest, that is in the countries where the standards 
of living are lowest and least protected from 
reduction by labour unions and ameliorative 
legislation, such as unemployment and health 

No other considerations than these are necessary 
to make it clear that, though the poorer countries 
will borrow from the richer ones in a monetary 
sense, the borrowers will find it increasingly 
to their advantage to borrow money rather than 
goods and services, and to expend the money 
in still poorer countries where costs are lowest 
and the things they need are cheapest. Then 
arises the triangular situation, of a country A 
lending to another B which buys not in A but 
in a third country C, and pays by draining gold 
from A to C, precipitating in A deflation and 
a period of prolonged economic paralysis. Thus 
inevitably the gold-standard acts to keep all the 
world as poor as the poorest nation which competes 
for markets. 

Effect of Freeing Foreign Exchanges. Now let 
us examine this same case with the exchanges 
absolutely free to adjust themselves. If A lends 
money to B, B must take it as goods and services 
from A. Converselv if B repavs a loan to A, 


A must take it as goods and services from B, 
because any attempt to buy in a third country C 
will put the exchange at once against the country 
attempting to buy and make it more profitable 
for the buyer to avoid exchanging money and 
this he can do only by buying in the country 
from which the money is received. Under these 
circumstances the exchanges come nearly to 
reflect, as they ought to do, the relative worth of 
the monies, each in its own country. The par 
of exchange then means the relative quantities 
of the various monies which, each in its own 
country, buys the same average amount of goods 
and services. To be more precise, there is on 
the average no economic advantage in changing 
money at all. In so far as individuals are under 
the necessity of doing so and their necessities 
do not cancel each other, the exchange will 
move against the country which, on the balance, 
is changing its own money to pay foreign 
indebtedness, so making it easier for the debt 
to be settled directly by the transference of goods 
and services rather than by exchanging money 
at a loss. 

Usually the case is argued along the lines 
that it is impossible to maintain both a constant 
internal price-level and a constant exchange 
ratio abroad, and that the choice has to be made 
between them. But the argument here is directed 
to show that it is quite essential to leave the 
exchanges free to find their own parity, when 


internal price-level has been stabilized. Let us 
suppose two countries in which the par of 
exchange reflects equal buying power of the two 
monies, each in its own country. So far as the 
argument is concerned, we may for simplicity 
ignore the differences of quality between the 
imports and exports of the one or between the 
exports and imports of the other country, and 
even suppose each country is importing exactly 
the same things as it exports, as indeed to some 
extent happens under our mad system, much to 
the mystification of seafaring men. Then let 
the one country, A, be inflated while the other, 
B, maintains a constant price-level, the exchanges 
being quite free to adjust themselves. Goods in 
country A are becoming dearer. This operates 
to check its exports and stimulate its imports. 
But as in both countries the importer pays the 
exporter of his own country in his own currency, 
unless the exchange rate adjusted itself, the 
importers in A will be paying the exporters 
for more goods than they have exported, while 
the importers in B will be paying the exporters 
in B for less than they have exported, which, as 
Euclid would say, is absurd. The device of 
imagining the goods imported to be the same 
as those exported merely makes what tends to 
happen clearer without essentially distorting the 
truth. The debts incurred by A in B, on the 
balance for imports in excess of exports, can 
oply be squared by the greater quantity of A's 


money in B exchanging for the lesser quantity 
of B's money in A, since each is useless to the 
exporters furnishing the goods until it is exchanged 
for the other. But this is exactly what has really 
happened, for it takes a greater quantity of B's 
money to buy in B the same goods as before. So far 
from attempting to equalize the exchange any 
attempt to do so is to rob Peter to pay Paul, and the 
more quickly the exchange turns against a country 
debasing its money the better for all concerned. 
But private speculation on the foreign exchange 
must be completely stopped and the exchange 
of national money for that of other countries 
must also be put under direct national super- 

Correct Use of Gold. Nor is there anything in 
all this in the least detrimental to gold being 
used as a convenient form of merchandise to 
correct purely temporary or spasmodic disturbance 
of the exchanges. For this, indeed, it is very well 
suited. But it must be regarded as a commodity 
and divorced altogether from its " gold-standard " 
function of producing by its outflow and inflow 
thirty-fold reductions and increases of the total 
quantity of money. A currency stabilized at 
a constant index number or price-level by 
increasing the total quantity of money, as increase 
of production puts on the markets increased 
quantities of goods for consumption, would 
still find a certain average holding of gold an 
advantage in stabilizing the exchanges. If another 


country with money convertible into gold began 
to inflate, its increased imports would be paid 
for by outflow of gold so long as it had any, but 
the gold accumulating in the country exporting 
to it would under this system tend to be worth 
less, in relation to the average of other goods, 
than before. This itself would be an effect of 
the same nature as the exchange going against 
the country debasing its money. But, so far as 
concerns the country with stable money, gold 
is just one of the commodities it can buy abroad 
with, and, apart from the convenience of using 
it for smoothing out spasmodic exchange fluctua- 
tions, it is free to import or export just as much 
or as little as may be to its economic advantage. 



J\/TONEY in the New Economics. It has been 
'"* necessary to go at some length into 
the evolution of the existing monetary system, 
and also to show how it is operating to keep the 
world in its present highly dangerous and 
explosive condition. During the course of this 
exposition certain suggestions have been made 
for its reform. These depend in part at least 
on the new and original interpretation of the 
physical realities of economics that was dealt 
with to some extent in the introduction. They 
are likely to be much more easily understood 
by those engaged in productive avocations than 
by those trained in outworn habits of thought, 
from whom, unfortunately for the world, most 
leaders and administrators have hitherto been 

It is not possible to mix these old and new 
philosophies any more than it is possible to mix 
science with witchcraft and magic, or for a 
modern man to think and act within the same 
horizon of ideas as a primitive people. Above all 
the new economics of abundance or the monetary 
system required to distribute it cannot be 
expounded in terms of the old economics of 



scarcity. In this new philosophy money itself 
appears for the first time in its true light, being, 
instead of wealth, merely a receipt for wealth 
voluntarily given up for it ; used in short as 
a credit token. To-day, we allow the whole world 
to be held in the grip of people who have discovered 
how to get wealth given up to them without 
even printing receipts for it ; in a scientifically 
controlled civilization the issuer of money would 
bear to the rest of the economic organism much 
the same function as the booking clerk at a rail- 
way station does to the rest of the railway service. 
Just as the latter has to account for the money he 
receives in return for the services of the railway 
he distributes, the other would have to account 
for the goods and services he receives in return 
for the money he distributes. Such a simple idea 
as this is the starting point of the role of money 
in the new era. It is true that money tickets are 
permanent and, once issued, go on circulating 
for ever without being destroyed or cancelled. 
But apart from this very much the same sort of 
considerations of ordinary common sense are 
involved as would apply to a railway. 

There is now No Shortage of Wealth. In the 
new economics there is now no difficulty in 
creating wealth. Unemployed labour and capital 
are only waiting to be given orders to proceed 
to do so. If it were understood once and for all 
that, when they had done so, the money would 
be issued by the nation to distribute the product 


at the same price-level as prevailed when the 
costs in connection with their production were 
incurred, nothing else would be necessary to 
ensure that all the unemployed labour and capital 
would permanently be put into full productive 
operation. From that moment the nation, as 
a matter of course, would be working all out 
for the creation of wealth for consumption and 
use as, during the War, it was working all out for 
the creation of wealth for destruction. It is, in the 
author's opinion, an exaggeration to suppose that 
the time has yet arrived when it is impossible 
usefully to employ any part of the labour and 
capital available. No doubt a considerable 
re-orientation of the productive system to meet 
changed conditions may be required, but for 
a long time to come we shall have full use for 
everybody and everything able to assist in the 
reconstruction of the world. 

But those who wish to know further as to the 
principles to be observed in order to achieve 
this result must be prepared at this stage to cut 
the painter altogether and part company from 
the old metaphysical school of economists, who 
realized the underlying physical implications 
of the subject no more than the technically 
untrained man. To a scientific man, it is well- 
nigh incredible that a body of men, posing in 
this very subject as experts, should for nearly 
a century have failed to distinguish clearly between 
the consequences of genuine lending and of 


pretending to lend by creating new money as 
" bank-credit ". 

Motive. The difference between the economist 
and sociologist on the one hand, and the scienti- 
fically trained mind on the other, could not be 
better illustrated than in the treatment of human 
motive, with which it might have been expected 
that the former would have contributed more 
than the latter. The economist saw in it nothing 
deeper than desire for " profit " on the part of 
a competitive horde of acquisitive individuals. 
The sociologist fills volumes with the discussion 
of " -isms ", personifying in the time-honoured 
guise of gods and demons, and giving capital 
letters to imaginary protagonists conjured into 
existence to explain nothing more human than 
errors of counting and economic swindling, 
grosser (because more universal), than the 
falsification of weights and measures. The 
scientist takes it for granted that, in an individ- 
ualistic society, unless men can obtain a liveli- 
hood somehow they must cease to exist by the 
ordinary process of starvation, and had better 
not have been born. He recognizes, however, 
that there is no power on earth, or for that matter 
in hell, which can permanently obstruct men from 
availing themselves of all that their knowledge 
and skill can derive from nature for their 
sustenance, thus arriving at a broad and satisfactory 
theory of war, revolution, sabotage, and social 
strife, which fits this age as a glove. 


The Existing Wealth. It may be useful to start 
this brief survey of the obvious physical principles 
that must be observed if money is to play its 
correct role in an individualistic community, 
with a trite but physically important proposition. 
If we contemplate everything of economic 
value that distinguishes the present civilization 
from any former one we may be sure that it must 
have been produced and is not yet consumed. 
In our advanced civilization it is seldom that 
people either find or actually make the things 
that they want. In practice men usually confine 
themselves to some specialized form of labour, 
relying for the rest on the activities of others. 
This is known as the division of labour and, 
though in the sociological sense this has more 
and more come to mean a social scale with an 
over-worked middle and voluntary or involuntary 
leisure at either end, it is the purely economic 
sense of the phrase that is intended. The things 
produced directly by their owners for use and 
consumption, as being exceptional, may be 
accounted as produced by people employing 
themselves, who however require sustenance 
while doing so no less than those employed to 
produce for others. It is natural therefore to 
distinguish two main purposes of wealth, 
according to whether it is consumed in just living, 
in " Consumption Absolute ", as Ruskin put it, 
or in producing new wealth for future use and 


Consumption for Production and for Leisure. 
The distinction is loosely expressed in the ordinary 
monetary connotation of the terms spending and 
earning. But, from a physical point of view, both 
these actions equally entail consumption of 
consumable wealth and the use of non-consumable 
or permanent wealth, however much the things 
consumed or used, either in just living or in 
producing for the future, may differ in detail. 
But it is not only this which accounts for a certain 
confusion of thought in this subject. In an Age 
of Want most people asked no more than, and 
were glad if they got as much as, would maintain 
them in a reasonable state and comfort for the 
purpose of production. Wages, or, for that matter, 
salaries, at least in the lower grades exposed to 
competition, have never been anything else but 
fixed by the average remuneration required to 
enable the worker to carry on his avocation 
efficiently, in the manner customary, and with 
the standard of living and the social status usual 
to that type of avocation, and to suffice to rear 
a family or provide training for a new generation 
to carry on the same occupations. Admittedly 
there has always been a considerable elasticity 
in determining the remuneration, as well as 
in the degree of comfort and satisfaction different 
people derive from the same remuneration, 
according to an immense range of individual 
circumstances and aptitudes. 

But in an Age of Potential Abundance, with the 


increasing opportunity for leisure afforded by 
the increasing efficiency of the production process 
the distinction is becoming of much greater 
importance, and it seems desirable to separate 
this use in " just living ", the real leisure use, 
from the other more sharply. Leisure is becoming 
no longer a luxury or old-age reward, but a 
universal economic necessity, outside of the 
production process, and quite apart from what 
the term has usually been taken to mean 
sufficient recreation to maintain the worker in 
mental and bodily fitness. Death alone may 
be expected to rid the world of those who, often 
doing little enough themselves, yet regard a wage 
above the subsistence level as an unhealthy 
symptom and in need of financial correction 
by deflation. There can be no doubt whatever 
that, psychologically, this was at the bottom of 
the disastrous financial policies the country has 
pursued since the War. 

Consumable and Capital Wealth. But on the 
physical side there is a very real division of wealth 
into two categories also, quite outside the one 
just stressed, which though also purposive or 
functional in character, does depend on entirely 
different physical characteristics. It is the distinc- 
tion between wealth that is consumable and that 
which is not. It is this that the new economics 
has stressed. The fundamental importance of 
it was completely outside the comprehension of 
the old. The existing confusions especially in 


regard to the nature of what is meant by the 
chameleon-like term Capital, including all its 
derivations and ramifications in the sociological 
controversies concerning " Capitalism ", seem 
to have their origin mainly in the neglect of this 
essential difference. Thus to Marx (1859) " The 
wealth of those societies in which a capitalist 
mode of production prevails, presents itself as 
an immense accumulation of commodities ". 
Whereas to a new economist guided by the 
energy theory of wealth, as already hinted, an 
immense accumulation of commodities would 
simply rot. It is quite impossible and moreover 
very unprofitable to try to accumulate enough 
wealth even to last the individual through old- 
age. He is in daily need of fresh wealth, and the 
accumulation is of debt not wealth. Moreover 
these capital debts have the identical peculiarity 
of money itself as a debt. They can never be 
repaid ! 

To the individual, it is hardly of importance 
whether the claim he possesses on the communal 
revenue of wealth is a pure debt, like the national 
debt, providing him with an income provided 
by taxation of the incomes of himself and others, 
or whether it derives from the output of a revenue- 
producing enterprise to which he has lent or 
entrusted money and so helped to start. But even 
if it is the latter, the productive capital of the 
enterprise itself is usually almost entirely worth- 
less, except as a scrap valuation, if not used 


for the particular purpose for which it was 
provided, or if better means of supplying the need 
are invented. 

Capital Debts not Repay able. Productive capital 
in this sense is only wealth to the individual 
because (i) it may be ^changed for wealth with 
another individual or (2) because he can charge 
hire or rent for the use of the plant he has helped 
to provide. Unless nationally owned, from the 
community's standpoint it is, like the national 
debt, merely a source of revenue to the owner 
of the debt at the expense of the rest of the com- 
munity. Both equally are physically irrepayable. 

The essential consideration underlying the 
foregoing is that though the two categories of 
wealth may exchange among individuals, the one 
cannot be changed into the other at will. The 
change can only go one way, from consumable 
wealth into permanent wealth, by feeding and 
maintaining the producers of wealth. It is a 
matter of choice whether the producers shall 
raise pigs and grow corn or build factories, and 
the maintenance required by the one type of 
producer is not essentially different from that 
required by the other. But the choice once made 
is irrevocable. From the standpoint of the nation, 
the exchange of one sort of wealth for the other, 
whether it is A or B who own the one or the 
other, is not of importance. The one owns the 
wealth and the other the debt exactly as in 
the exchange between wealth and money. 


Energy Considerations. This physical distinc- 
tion between consumable and unconsumable 
wealth is at bottom an energy distinction. In the 
class of consumables proper, such as food, fuel, 
explosives, and similar commodities, we deal 
with things which are useful because they are 
consumable or destroyable. In the category of 
permanent wealth we deal with things that are 
useful because they are durable and resist 
destruction. In this class it is usual to distinguish 
the permanent wealth that people make use of 
and require in their personal and domestic lives 
from that which appertains to their avocations 
in the capacity of producers, and to which the 
term " productive capital " may be without 
ambiguity applied. For the former " personal 
possessions " suffices. Before leaving the point 
let us go a little farther into why this distinction 
is so fundamental. The physical qualities 
contrasted are, superficially, ability to change 
and ability to endure, or changeability and 
durability, but this only conceals a deeper mean- 
ing. The first class by their change provide the 
flow of energy which actuates animate beings 
and inanimate mechanisms alike, but, for the 
second, just because they are required to endure, 
it is the other way. They are not used as internal 
reservoirs or sources of energy at all, but must be 
capable of withstanding change or alteration 
when subject to external force or stress. For 
spontaneous change in the material sphere only 


occurs accompanied by a change of energy 
analogous to that of water running downhill. 
Our distinction at bottom is between the things 
that can change, yielding such a flow of the 
energy that actuates life, and those that can resist 
change when subjected to energy attempting 
so to flow (force or stress). 

In practice we distinguish, in border line cases, 
by *the function ; that is to say by which of the 
two contrasted qualities is the useful one. Clothes, 
and the like, which are required to last as long as 
possible, are considered permanent, though for 
these fashion operates to shift them more over 
into the consumable class than necessary, the 
motives of the producer and the consumer being 
(in our mad world) antagonistic. Whereas 
however tough a beef-steak may be it is only 
useful in so far as it is consumable, and in so far 
as it resists digestion it is undesirable. 

Productive Capital not Distributable. In this 
sense of Capital, as the unconsumable product 
of the consumption of consumable wealth, there 
is no distinction, for example, between a house 
used as a private dwelling and one used as a 
factory. Both are the products of the expenditure 
of work or energy, and in so far as they may be 
sources of energy themselves (by falling down or 
catching fire) are undesirable. But from the 
standpoint of the role of money there is this 
important distinction, that a private house comes 
into the consumers' mart as one of the commodities 


required for the use of consumers, whereas the 
factory does not. Its purpose is intermediate, 
as Ruskin remarked of Capital, and it never 
leaves the production system at all. It may change 
hands within the production system, but that is 
of no particular national significance so far as 
the accountancy reflecting its existence is 
concerned. Yet both are essentially identical 
so long as we consider only their mode of 
production. This no doubt was in the mind of 
J. S. Mill in his statement " The distinction 
between Capital and Not-Capital does not lie 
in the kind of commodities, but in the mind of 
the capitalist, in his will to employ them for one 
purpose rather than the other ". Nevertheless 
when he has made up his mind and acted upon 
his decision a very important distinction does 
enter. It has been common since the day of 
Adam Smith to refer to a stock of commodities 
and plant, mentally ear-marked for use in pro- 
duction, as Capital, and from this to extend the 
use of the word to money intended for this purpose. 
It is impossible in economics to make water- 
tight logical definitions or distinctions universally 
applicable in all cases. Even in mechanics the 
laws become different when we deal with velocities 
comparable with that of light, though within 
the range of practical engineering these complica- 
tions are, as yet at least, completely without 
significance. But there must be a definite 
consistent use of the terms within the range, 


often quite narrow, to which the argument 
applies. It is far more important that they should 
have a narrow known and definite meaning than 
that their meaning should be made so wide and 
vague as to cover every conceivable contingency. 
For then, as in political and sociological contro- 
versies, they may mean half-a-dozen different 
things at different times in the course of a single 
argument. So with Capital, it would probably 
now be much better never to use the word at all. 
Capital under Communism and Individualism. 
From the standpoint of the present book the use 
of the term is confined to the unconsurnable 
product of consumable wealth used for the 
production of wealth, and it is considered as the 
sub-category of permanent wealth, distinguished 
from private possessions by its function in 
production. We are not concerned with intentions 
but the physical consequences of actions. It is 
only in this sense that the controversies concerning 
nationalization of the means of production, 
distribution, and exchange, and the differences 
between Communism and individualism have 
any real meaning. Forms of government have 
far less significance than people are apt to suppose. 
Thus the necessity of capital in the above sense, 
in general just in proportion as civilization 
advances, no one now questions. Every new 
advance in production is due to something 
analogous to the evolution of the plough into the 
tractor, demanding more and more people being 


set aside and maintained while producing and 
keeping in order the plant required for production, 
but not actually producing anything whatever 
that the ultimate consumer requires. 

In a Communist state this is no less true than 
in others. There, the Government, as the owners 
of everything, take as much as they require not 
only for their own services but also for the 
provision of new capital, and the actual producers 
then get anything of the consumable and privately 
usable wealth that may be left over. In an 
individualistic society, for which we are exploring 
the role that money has to serve, the capital is 
provided by " investment ", which means that 
people instead of consuming all they earn in their 
private or personal capacity empower others to 
expend it in revenue-producing enterprise, upon 
the output of which they acquire a lien or claim. 
But, after that, they can only get their principal 
back in any form at all useful to them by exchang- 
ing for new wealth their claim with someone else. 

The consequence of this is that, in any modern 
individualistic State, there is always a very great 
deal of production going on which adds nothing 
directly to the products people purchase in their 
capacity of consumers, and which has to be 
accounted for by " investment " or some form 
of " saving ", in which titles to consume are 
surrendered by their owners and transferred to 
others. Moreover this part of the expenditure 
iSj nationally, quite irretrievable and irrepayable. 


All Costs of Production are Distributed to 
Consumers. It does not in the least affect the 
accountancy that this " capital " consumption 
is intended to lighten the labour and cheapen 
the costs of future production, and, if successful, 
does actually do so. In physics there is neither 
interest nor discount, neither lending nor borrow- 
ing. All these only refers to mutual arrangements 
as to ownership which people may choose to 
make among themselves. Neither do the various 
elements that make up cost or price enter into 
the physical accountancy, nor such distinctions 
as between the relative proportion of raw material, 
labour, overhead charges, profit, interest, and 
rent, or between wholesale price, retail price, 
cost price, sale price, and the like. We are not 
concerned with how the cost or price is divided 
among the various individuals participating, but 
merely with the total, being very sure that 
whoever receives it, and in whatever capacity, 
will enter into full individual enjoyment of it, 
whether it is earned or unearned, just or unjust, 
for positive or for merely negative and permissive 
services. Though many such things, of course, 
may make a great difference to the social well- 
being of a community, and, in particular, to the 
relative proportion that an individualistic society 
may elect to use its wealth on personal consump- 
tion and use or in productive expenditure, these 
things are all subsequent to the question of the 
role of money as an accounting mechanism. 


Production for Consumers. Let us separate the 
two essential functions which are always going 
on together, so as to see each by itself, and suppose 
we are dealing with a system neither increasing 
nor decreasing its output, and with money at 
a constant price index of purchasing power. 
As regards the production and consumption 
of wealth for private and personal use we may 
divide the circulation proper of money into two 
halves, the production and consumption halves 
of the cycle. The two halves of the circle join (i) 
where money is paid out from the production 
half as wages and services, for putting wealth 
into the production side, and so it finds its way 
into the consumers' pockets (2) where the money 
is paid back by the consumers into the production 
system to buy the product they have produced 
in an earlier equivalent period of production. 
The circulation of the money is endless, with 
only the consumable, and privately-usable wealth, 
produced flowing out at (2) for consumption. 
The total aggregate paid out in respect of the 
production of any definite quantity of things 
produced is the price, and it is only because this 
money is paid out that the product can be bought 
and the same money used again to produce a 
fresh quantity. The same money goes round 
over and over again distributing an endless 
succession of goods and services to the consumer. 

As already indicated, it is a beginners' mistake 
to imagine that all the costs incurred by industry 


are not distributed to buy the product. It is 
utterly incorrect to suppose that there is any 
difference between them. Overhead charges, 
interest, rent, and profits no less than wages, 
salaries, and costs of materials, all are payments 
to individuals who do not hoard them in their 
stockings, but spend or invest them, in their 
private capacity as consumers, just exactly the 
same as other people. As regards this one purpose, 
production for and distribution to the ultimate 
consumers, the costs incurred balance the costs 

Production for Producers. But when we 
consider the second purpose, production of 
capital, the product is never distributed to 
consumers at all, but remains its whole useful 
life in the production system. When a factory is 
built it is paid for by people, instead of going 
to the consumers' mart to buy things for their 
personal use and consumption, returning it direct 
to the production system, and authorizing the 
producers to expend it again as wages, etc., to 
build the factory, but the factory never is distri- 
buted to consumers and never can be. This 
may be expressed by saying that investment or 
saving by-passes the consumers' mart. The money 
circulating, instead of taking out the same amount 
of wealth as it puts in at every revolution, now 
circulates through the production system twice 
creating fresh goods, but only takes them out once, 
resulting in an increase of wealth in the production 


system. But this increase is " productive capital ", 
useless for the consumers' requirements and, as a 
matter of fact, it is never distributed at all. 

The Accumulation of Debts. The productive 
capital is built up by the creation of a permanent 
and irrepayable debt owned by the investor and 
owed to him in perpetuity. The same we shall 
soon come to see applies to every increase in the 
quantity of consumers' goods in course of 
production, as well as to the fixed capital, and this 
is the most important error of accountancy 
hitherto made by money economists, for until 
this is understood it is quite impossible to main- 
tain a fixed value for the money or a constant 
price-level. Both on account of increases of fixed 
capital and replacements and renewals of obsolete 
or outworn plant, as well as on account of the 
increase in goods in course of production in an 
expanding era, if the expansion is not to be 
ephemeral, the production system distributes 
far more money than the money it receives for 
the products it distributes, and the difference 
is the accumulating capital debt, under which 
all nations alike are now groaning. 

Solution of the Unemployment Problem. The 
immediate problem that has to be solved is to 
bring back at once into useful production the 
whole of the available unemployed labour and 
capital. The most conservative estimate is that 
in this country a twenty-five per cent increase 
would at once result. This means that in a few 


months everyone would on the average be twenty- 
five per cent better off than before. But the real 
increase that would result, if production were 
no longer throttled by money manipulation, 
cannot possibly be estimated from the present 
figures, as so much of the output is now distributed 
by piling up redundant and superfluous distribution 
costs, and this would no longer be necessary. 
It is perfectly correct to issue new money after 
the increase in the rate of production has been 
proceeding long enough for the increased quantity 
of goods to appear on the market. The retailers 
then have new goods equal in value to the new 
money issued to distribute them. But it is quite 
wrong to issue it as a debt to industry in order 
to enable the new production to be begun. That 
is precisely analogous to setting up a booking office 
before the railway is built and financing the building 
of the railway by the forward sale of tickets. 

Cost of Increasing Production not Repayable. 
A simple illustrative example may serve to make 
this vital point clearer. Suppose a weekly 
additional distribution of a million pounds' worth 
of goods is desired, and that it takes thirty weeks 
from start to finish of production before the first 
new million pounds' worth appears for sale, after 
which there will be a similar amount appearing 
every week. If the costs of production are uniform 
over the period of production, then the appearance 
of the first new million pounds' worth of wealth 
corresponds with the expenditure not of a million 


pounds but of fifteen million pounds in general, 
of half the product of the time in weeks and the 
quantity produced per week. Besides the finished 
product, there will be thirty weeks' production 
of unfinished products ranging from zero value 
at the beginning to full value at the end, and, 
on the average, of half the value of the finished 
product. All of this is taken from the value of 
the existing money by extending credit to the 
producer without anyone giving up anything 
at all. The money loses in value in proportion 
to the increase because the new issue takes out 
of the market the equivalent of finished goods 
without putting any back into the market. While, 
as regards the fifteen million pounds' worth of 
intermediates it puts in, that quantity must remain 
therefor ever after, as much being put in as comes 
out, unless the new increased scale of production 
is to be reduced again to what it was at first. 

The case is entirely analogous to starting to 
distribute oil by means of a new pipeline, and 
omitting to account for the quantity necessary 
to fill the pipes. Always that amount more of 
oil must be put in than comes out, so that this 
part of the fluid saleable wealth has to be accounted 
in the monetary system exactly as fixed capital 
and paid for by permanent investment, in which 
the consumers' mart is by-passed and the money 
paid out of the production system is put back 
directly into it without taking out anything from it. 

Exchange of Owners Contrasted with Creation 


of Wealth. Before leaving the complexities 
appertaining to the exchanges between wealth 
and money, slurred over rather than elucidated 
by the vague term " circulation ", which have 
led economists into all sorts of impressions anent 
its " velocity " and the changes consequent upon 
the increases and decreases thereof in increasing 
and decreasing the rate of production of wealth, 
we may, for completeness, consider a few of the 
less essential operations. The division of the 
cycle into two parts, a producers' side and a 
consumers', side, is a device to eliminate the 
unessential exchanges, and it remains to consider 
these. They are of the nature of changes of 
identity of individual owners of property. On the 
consumers' side, all sorts of exchanges are going 
on mainly in regard to permanent possessions, 
sales of houses, estates, furniture, and the same 
is true, on the production side, with regard to 
plant, factories, and investments representing 
ownership in, or debt-claims upon, the production 
system. Nor does it seem to be important that 
individuals owning private property may exchange 
it for capital investments and vice versa, for in 
such cases the owners exchange sides leaving 
the wealth where it was. The circulation of money 
proper is distinct from all such mere exchange 
of ownership in this, that it is essentially an 
exchange of services for the creation of new 
finished wealth, and it is only in this exchange 
that new wealth arises. 


The Quantity of Money cannot be Calculated. 
But the complexities show that it is not possible 
to calculate beforehand exactly how much money 
must be issued to distribute any given increase 
in the rate of production. One cannot simply 
say there must be always as much money as there 
are goods for sale. A similar point, called attention 
to by recent writers, is the greater quantity of 
money " absorbed " in the production system 
through the growing complexity of methods of 
production and the number of different organiza- 
tions handling in series the wealth in course 
of manufacture, which is one of the consequences 
of the division of labour. We have to avoid endless 
calculations of this character. 

The habits and customs prevailing both among 
producers and consumers cannot be eliminated 
from the question as to the quantity of money 
that ought to exist to distribute, at a constant 
price-level, any given output, or how that must 
be increased as the output increases. Thus, in 
the given illustration, it would only require a 
million pounds of new money if, after the system 
had settled down at the increased output, it 
took a week on the average for the money after 
its presentation at the consumers' mart to arrive 
there again. It is hardly possible even to guess 
this, from such data as may exist concerning 
a monetary system in which the quantity is 
reckoned from an always varying minus number, 
and in which the amount in existence is unknown 


because of the slurring over of the distinction 
between current and time-deposits. For similar 
reasons, the amount of genuine investment 
necessary, as a preliminary building up of the 
system to a higher output, is completely incalcul- 
able. It depends entirely on innumerable average 
factors, none of them very definitely known, 
relative to the nature of the increased production 
which the public demand, again unknown in 

The Price Index Determines the Quantity of 
Money. Fortunately it is entirely unnecessary 
to go further into these unknown factors, because 
the price index itself, under the system described, 
regulates the rate at which the new money would 
be issued. Postulating money only created, or 
if necessary destroyed, at the bidding of statis- 
ticians watching the price movements, and then 
issued to consumers as a relief from taxation, 
the price index would be controlled on the same 
principles as the speed of an engine is controlled 
by the engine driver. The latter could not possibly 
tell beforehand the integrated effect of the factors 
affecting the speed of the train, such as the 
gradient, the efficiency of the engine, the tempera- 
ture and pressure of the steam, and so on. He 
simply opens the throttle if he wants to go faster 
and shuts it down if he wants to go slower, 
leaving the rest to his fireman. The production 
of new wealth under the most efficient and rapid 
processes can safely be left to the technologist. 


All that is necessary is to have a system of creating 
new money if the price-level tends to fall and 
unsaleable goods to stack up, and to destroy it 
if they get scarcer and prices tend to rise. This 
is quite impossible under the existing banking 
system, but quite possible under a rational, 
scientific, and national system, designed in 
accordance with the physical realities to which 
the production and consumption of wealth must 
conform. To imagine otherwise is to attempt 
to preserve a system in which money is issued 
not to distribute wealth but as a source of revenue. 
If there is one lesson that the history of money 
enforces, it is that when its issue is used as a means 
of enriching the issuer, whether the issuer be 
the State, the bank, or the counterfeiter, it is 
the most disintegrating and dangerous power 
ever invented by man. If there is any such thing 
as corporate will or corporate sense of danger 
in a community, it is imperative this lesson 
should be learned before it is too late. 

The Wasteful Costs of Distribution. But before 
leaving this subject it may be stressed again how 
large a part of the present effort of humanity 
is directed to the piling up of all sorts of 
unnecessary distribution costs to distribute the 
product, and enable everyone to share in the 
limited output, that is entailed by our funda- 
mentally false monetary system. If these were 
eliminated, as they naturally would gradually 
be eliminated, by having always sufficient money 


to distribute all that can be made, we may look 
not for a twenty-five per cent increase of prosperity 
but for a four- or five-fold increase. As Sydney 
Reeve stresses in his writings, over eighty per 
cent of the cost is piled up under " commercial- 
ism " by entirely unnecessary competition for 
the sale of goods, whereas the costs of their 
manufacture are fined down to a fraction of 
one per cent. This undoubtedly is the gravest 
consequence of the orthodox economists mistaking 
the exchange of goods for their creation and not 
bothering very much about the latter at all. 

The Role of Money Summarized. Summarizing 
this account of the role of money as the accounting 
mechanism, we find, taking the wide definition 
of costs explained (p. 149), that everything that 
exists of wealth of use to consumers is accounted 
or paid for by the true circulation of money, 
through the production and consumption systems, 
the money being paid out from the former for 
services in producing wealth and back again into 
it to take the wealth produced out. The existing 
wealth is the difference between what has been 
produced and what has been consumed, and this 
is continually changing owners by means of the 
hither and thither movements of money among 
individual consumers, apart from and without 
effect on the true circulation. With regard to 
what exists of wealth of use to producers, which 
is subject to the same perpetual exchange of owners 
by similar movements of money among producers 


without effect on the true circulation, and which 
also conies into existence in the same way as the 
consumers' wealth by this circulation, it is not, 
strictly speaking, accounted or paid for, but the 
costs of production accumulate as a permanent 
debt-charge on the production system. Exactly 
the same is the case for all the consumers' wealth 
in course or process of production, and the fact 
that this will ultimately be distributed to 
consumers makes no difference whatever to the 
accounting, as economic systems have to function 
continuously and for ever without being wound 
up. On the other hand, money itself is an asset 
in drawing up the balance of costs, on account 
of the fact that its possessors accept and regard 
it as payment in full, though in fact it is a promise 
to pay in the future. To this extent what is given 
up for it in the way of goods and services the 
Virtual Wealth is available to pay part of the 
costs incurred in the production system, but it 
can only be in general a small part even of the 
particular costs last considered, namely those 
sunk in the wealth in course of production. 
No scheme of monetary reform can be correct, 
or any money system sound, in which all the 
existing wealth cannot be accounted for in some 
such manner as the foregoing. 


AN Age of Power rather than of Machines. 
-** The older conventional ideas as to human 
progress, that it results from the benefits of human 
association and the division of labour, making 
each member of the community able to contribute, 
when engaged in a specialized form of occupation, 
much more to the common fund of wealth than 
would be possible if everyone had to provide 
independently for his own requirements, while 
true enough as far as they go, hardly touch the 
origins of the fundamental step forward in progress 
attained in what should be called the scientific 
age. Tools in the broadest sense have always 
been considered the real civilizers, increasing 
the efficiency of their human users in the various 
tasks of life. But that stage we have altogether 
outgrown. People who talk about the Machine 
Age are putting the cart before the horse. Modern 
machines are usually stronger, more tireless, 
and more accurate imitations of specialized 
productive functions of men ; and have to be 
fed just like men. Unless energized they are dead 
as any corpse. Though men have not yet learned 
to feed directly on fuel, during the War some 
tropical river steamers are said to have been run 

161 M ' 


on monkey-nuts, and, after it, the American 
farmers of the Middle West are reputed to have 
been advised to use their wheat as fuel to keep 
up the price. Scientifically, there is less distinction 
between manufacture and machino-facture than 
is commonly supposed. In both it is the energy 
that is the prior consideration. Whether it is 
derived from a man or beast, fed on food, or 
from a machine fed by fuel, is of minor import 
as regards the object, which is the production 
of wealth. 

Men in the economic sense, exist solely by 
virtue of being able to draw on the energy of 
nature. Primitive civilizations were almost entirely 
dependent on its flow. They utilized the sunshine 
to raise food and rear draught-cattle and drew 
on the winds to propel their vessels, and to some 
small extent also on rivers to drive their water- 
wheels. But these are now supplemented by a 
store of energy laid down in fuel from days before 
man's footprint had appeared on the world. 
Thermodynamics has taught us how to convert 
the heat it furnishes on combustion into 
mechanical power. The primitive labourer was 
the intelligent transformer of the flow of energy 
in sunshine. The modern engineer has widened 
the function, to a considerable extent displacing 
the labourer from production. But no man 
creates the energy, however much it may appear 
that he creates wealth. Wealth, in the economic 
sense of the physical requisites that enable and 


empower life, is still quite as much as of yore the 
product of the expenditure of energy or work. 
But now it is largely produced by fuel-driven 
machinery, embodying the essential movements 
required for each step of the production in an 
automatically recurring cycle, rather than by 
individuals working under their own volition and 
power. Nature has been enslaved and men may, 
indeed must, be free. 

Money Unrepayable National Debt. In this 
book we are primarily concerned with the role 
of money as the accounting and distributing 
mechanism, enabling generalized and social 
production to go on smoothly, combining the 
advantages of human association and the division 
of labour with the distribution of the product for 
individual and personal use and consumption. 
There is not the slightest doubt that the invention 
of money, displacing early patriarchal and 
feudal forms of communism, originally added 
enormously to the liberty of the individual. The 
modern tendency towards communism is entirely 
due to the fact that the primary function of money, 
the distribution of socially produced wealth, has 
been replaced by an entirely subordinate and alien 
one how to issue money so as to make it a 
source of revenue to the issuer, and to bear 
perennial interest. This might be more readily 
intelligible if those who gave up wealth for money 
received the interest paid on the issue, but instead 
they pay it ! It comes into existence by the 


simultaneous appearance of two equal items on 
the two sides of a bank-ledger, whereby on one 
side the borrower is credited with the sum 
borrowed and on the other debited. Taxpayers 
have so far failed to notice a similar but opposite 
peculiarity of accountancy in the national accounts. 
They receive each year demand notes purport- 
ing to show the amounts spent on services, the 
largest items on which are Local Government 
and Education, each costing 48 millions. But 
the largest item Bank Services 100 million, 
or thereby, is omitted. Similarly, in the Revenue 
accounts, the corresponding item " Interest on 
goods and services levied as bank-credit " fails 
to appear ! 

Capital Debts Unrepayable. " Saving " Conven- 
tional. Apart from this irregularity, we have 
seen that while the circulation of money through 
the production and consumption halves of the 
cycle accounts correctly for the production and 
distribution of consumables, using the term to 
connote the wealth of use to consumers, it 
accounts the production of capital in the produc- 
tion system itself as a debt to individual investors, 
and these debts accumulate continuously and can 
never after be repaid, because they represent 
expenditure on things that are never distributed 
^nd, if they were, would be quite useless to the 

It is interesting that precisely the same mistake, 
making money a debt to private firms when it is 


irrepayable by its very nature, is, with respect to 
capital, also at the root of all the stale political and 
sociological controversies between capitalism and 
socialism. As a heritage of the unscientific 
and muddled economics of the Victorian era, 
the most extraordinary confusion persists in 
political circles on this question in connection 
with nationalization and similar schemes, and to 
these we shall have to revert. But, unless indivi- 
duals prefer to trust a benevolent State to support 
them in old-age, they must u save " and all 
this saving business is conventional lending 
a surplus of income over expenditure in order 
to get it back later and, in the meantime, a revenue 
from it as interest. But there is no wealth avail- 
able, outside of the flow or revenue of wealth 
from the production system. This is real. All the 
rest is mere accountancy between debtors and 
creditors. Claims are accumulated on the revenue 
of wealth both as regards the use of productive 
capital, derived from the hiring of it out by the 
owners to the users, and on the revenue of the 
State, raised by taxation, to meet the service of 
loans raised by it. These loans are almost entirely 
for non-revenue producing expenditure, namely 
destructive wars for the greater part and necessary 
national improvements and developments for 
the smaller. 

Necessity of Constant Price Index. Now this, 
without any other argument whatever, is sufficient 
to dictate that no monetary system can be honest 


or worthy of the confidence, either of the 
community or of other nations having economic 
dealings with it, that does not maintain an 
invariable price index. This is becoming every 
day more obvious through the bitter experience 
of the War and post- War epoch. Before people 
understood the insidious methods of swindling 
through keeping the price-level always on the 
move, there were plenty ready to argue that, if 
the costs of production fell through scientific 
improvements in manufacture, the price of goods 
ought to fall to the same extent. In that way every 
debt is subtly increased in its burden and the 
creditor put into the possession of an uncovenanted 
benefit, quite outside of and additional to what 
is in the bond as regards interest payment and 
capital repayment. Once one allows this, then 
the economic system simply becomes a cockpit 
for the struggle of wits, in which the agents and 
representatives of the creditor class are out, like 
the banks, to get something for nothing. This 
can only come by those who produce wealth 
setting aside more than before to serve the same 
nominal amount of debt, and, therefore, can only 
be derived by a corresponding reduction in the 
share of those producing it. 

It will therefore be taken for granted that the 
money of the future must be of constant purchasing 
power in terms of the average, sufficiently 
nearly, of the things it is used to buy, from one 
century to another, before any real advance is 


possible from the present disgraceful bear-garden 
of perpetual conflicts nominally between 
" capital " and " labour ", but in reality between 
creditors and debtors, which the national creative 
organization has been allowed to become under 
the existing dishonest economic and monetary 

How the Workers would Benefit. It will of 
course be asked at once, at least by those who 
want change, how, under such a system, the 
worker will benefit by the cheapening of the cost 
of production due to future improvement. It is 
easy to see that he, to this extent, loses the benefit 
if he has to share with the mass of pre-existing 
creditors the benefit that would arise from lower 

On the other hand, if costs are prevented from 
falling as the conditions in industry improve, 
producers are guaranteed a market for their 
maximum output, so long as it is what the public 
are actually demanding. There is no limit to the 
issue of new money, if properly carried out, so 
long as unemployed labour and capital are 
available. This unlimited demand for labour and 
capital would restore the bargaining power to 
labour without any need for, and far more 
effectually than, collective action, the only effective 
weapon of which, the strike, actually strikes most 
directly at the standard of living of the workers, 
by sabotaging the output out of which they as 
well as the creditors are paid. Usually the workers, 


having less reserves than those who have accumu- 
lated savings, suffer most by this sort of warfare. 
Whereas with the lowered costs of production 
resulting in a greatly increased turn-over, and the 
rising competition among employers for the whole 
of the available workers (as during the War), 
wages must rise until the latter obtain a fair share 
of the economies effected by increased output. 
At the same time, the principle underlying the 
new money system should be enforced with 
regard to new capital debts. It should not be 
possible, by a stroke of the pen, for any company 
to increase its nominal indebtedness to its share- 
holders and issue to them new shares without 
their contributing the full value in fresh capital. 
But it is only right that those who take the risk 
of loss in providing capital for industry should 
participate with the workers in increased 
prosperity. These points are however really 
covered by making all debts terminable after 
a definite period, a scheme which lies outside the 
role of money proper, but which will be reverted 
to at the end of this chapter as an essential feature 
of the new outlook on these questions which 
the physical understanding of them gives. 

Regulation of Money by Price Index. Thus we 
have reached the point that the first consideration 
of national or general well-being is a money that 
always purchases the same average amount of 
the things it is employed to purchase. Honest 
people have everything to gain and nothing to 


lose by honesty. Although it would not be true 
to pretend that as yet the ideal way of fixing the 
price-level has been elaborated, it is a problem 
that could safely be left to a disinterested bureau 
of statisticians, analogous in function to the 
bureaux of standards, or, in this country, the 
National Physical Laboratory, which undertake 
the absolute determination of the standards of 
weight, length, and volume, and check the actual 
weights and measures by which economic trans- 
actions are effected. There is, in fact, already 
sufficient experience of the determination of 
price-levels and index numbers, by the Board 
of Trade and various other institutions, to make 
it quite certain that no serious difficulty would 
arise in practice. 

It must be remembered that, by absolutely 
prohibiting the continual arbitrary variation of 
the quantity of money at each instant in existence, 
upon which " banking " now depends, and making 
its quantity known and definite, the real cause 
of the disastrous fluctuation of the price-level 
would be removed at the start, and it is quite 
absurd to argue from what has been happening 
in the past as to what will occur in the future. 
Obviously it is impossible to maintain a constant 
price-level under a banking system, in which 
money is arbitrarily created and destroyed by 
extending and withdrawing it in the form of loans 
or credits to industry, which loans can only be sunk 
in preparations for future production, and out 


of which both interest and profits must be earned. 
But, if money were only issued to consumers, 
as a remission of taxation, by the nation so soon 
as finished wealth awaited sale over and above 
that which can be sold by the existing money 
without fall of price-level, then appreciable 
changes in the latter could not and would not 

A Simple Price Index. There remains, it is 
true, the technical question as to which price- 
level to fix, and how it is to be computed, but in 
the stabilized economic world, which would result, 
the question seems of secondary importance in 
comparison with the advantage of fixing the price 
of any reasonable representative average of the 
things which the money is used to buy. Cut out 
the creation of money as a means of earning 
interest and create it for consumers, and the 
economic system will enter into definite equili- 
brium relations between all the various factors 
which determine relative prices of the different 
categories of the immense variety of things bought 
and sold. It would become a highly conservative 
and stable system, completely unrecognizable 
from what it is now, with the money continually 
being drained out from one part to be injected 
into another, and, all the time, the amount in 
existence being inflated and deflated like a 

It would seem that, as a start, a simple index 
based, for example, in the first instance on the 


average cost of living for a skilled artisan's house- 
hold would serve. It would be the duty of 
impartial statisticians studying the tendencies to 
advise from time to time if the index could be, 
in general, improved and made more representa- 
tive. It seems in every way desirable, in order 
to avoid any initial unsettling orgy of gambling, 
to stabilize the index number of prices at the 
existing level. Whatever that was, an average 
weekly or yearly budget would be constructed 
representing, at that time, the chief items, 
separately, in the cost of living of the type of 
family chosen as typical. At any future time, the 
same items in the same quantities as then computed, 
if again computed at the new prices prevailing, 
should amount to the same total, however much 
they might differ individually among themselves, 
if the price-level does not change. 

The Statistical Bureau. This illustrates the 
principle, though of course in practice the actual 
work of the statistical bureau contemplated should 
cover the whole range of the nation's economic 
activities. One of its functions should be not only 
to collect but to interpret data, and to answer 
specific inquiries, not only for the Government 
but also for all representative bodies carrying 
on the economic work of the community. It 
should certainly not be a Government Depart- 
ment any more than the Law or the Universities 
are, or under any one of them, and especially 
not under the Treasury. That would be a fatal 


mistake, as the Treasury would be the one 
department directly interested in the profits of 
the issue of new money. The temptation to 
issue too much and swindle creditors would then 
always be present. The new money must not 
be issued with the object of providing a source 
of revenue for the relief of the taxpayer, though 
that is the necessary consequence. 

The statistical bureau should be nominally 
directly under the Crown or the supreme head 
of the State, whoever that may be, and in much 
the same position, as a disinterested advisory 
body charged with definite metrological functions, 
as the National Physical Laboratory. Its recom- 
mendations should go formally to Parliament and 
be normally acted on automatically. 

A Reconstituted Mint. For the actual issue of 
the national money, the Mint should be reconsti- 
tuted to cover not only coinage but paper money 
also. The issues would be handed over to the 
Treasury, and added to the sums levied by 
taxation. As we have seen, the issue of credit 
money is really a forced levy or tax on the 
community, and the money itself is the receipt 
that the owner has rendered up equivalent value 
for it, and is entitled to the same value back on 
demand. The money should bear the legend 
" Value Received " instead of " Promise to 
Pay " and also the statement that it is legal 
tender in the country of issue. It should be 
regarded by the public as issued to postpone 


payments they would otherwise be called on to pay 
by taxes, and they should understand that, if there 
is at any time too much issued, it will be with- 
drawn in part by imposing the postponed taxation 
and destroying the requisite amount of money 
to prevent the value of the rest falling below par. 
Money would then appear publicly for the first 
time in its true light as a permanent floating 
non-interest bearing debt or liability of the 
whole community to its owners, repayable in 
goods and services on demand by mutual exchange 
within the community. 

Criticism of Proposals to Nationalize " Banking ". 
Apart from initial and transition stages in which 
it may and probably will be necessary to continue 
existing credits to producers until such time as 
they can free themselves from debt as they 
quickly would do under an honest monetary 
system what the nation needs is not more 
credits to producers but more money for 
consumers, and the correct way of issuing this 
is as a relief to the taxpayers in general. The 
proposals of the Socialists to nationalize banking 
show no understanding even of how to operate 
the system so as to secure a stable internal price- 
level which is the sine qua non of any real advance 
to just economic prosperity. They seem to 
contemplate doing precisely what the banks are 
doing now, at ruinous ultimate cost to the 
industries of the nation, the only difference 
being that the profits would be devoted to their 


ameliorative and charitable efforts. It will, of 
course, be argued that the profits of the issue 
of new money would be given to assist enter- 
prises really beneficial to the public. But this, 
with the necessity of their being either competitive 
or forms of government patronage, is a contra- 
diction in terms. They will be given to whom 
the government really thinks fit, and that, to be 
sure, is to assist themselves first and all the time, 
just as it is now given to and through the Bank 
of England ! 

Socialists never seem conscious that the people 
themselves are a better judge of what they need 
than any government they have ever in past 
history had, or in the future are likely to get. 
The whole structure of ameliorations and charities, 
in which the needy are provided out of what the 
general taxpayer may be forced to provide, 
would fall to the ground, like a pack of cards, 
if everybody had the opportunity of providing 
out of his own earnings sufficient and to spare 
for his needs. 

Prevention Better than Cure. Prevention is 
better than cure and the world is being kept 
diseased by those who wish it worse, so as to have 
the opportunity of curing it. That is the most 
amazing feature of the world to-day. Things go 
wrong and, ever after, it is saddled with vested 
interests in the cure. The whole modern bureau- 
cracy is engaged in the consequences of quite 
elementary and easily comprehended mistakes, 


and it is the most unpopular thing in the world 
to imply that human beings are really far more 
able to take care of themselves than left to those 
by whom their ailments are being nursed. The 
amount of unemployment that would result 
from preventing the known errors that have sent 
the scientific civilization off the rails is appalling 
to contemplate. It would involve most of the 
people now trying to sell us things having to give 
their services to producing them, and most 
of those who derive their livelihood from busying 
themselves with the affairs of State having to 
take a leisurely interest in their own. It is old 
as the hills, the Hippocratic wisdom of cure 
opposed to the /Esculapian cultivation of health, 
now become universal ; in brief, quackery versus 
knowledge. Release in fountains of life and leisure 
the flood of energy that the technologist has now 
under control, and the world would quickly cure 
itself of the weeds that thrive in its starved 

Interest on Debts. Although the accumulating 
burden of debt of individualistic societies lies 
outside the role of money in a narrow sense, the 
subject is so linked with it and is so vital to the 
future of these societies that it cannot be ignored. 
The physical explanation is the very much 
greater amount of labour that has to be expended 
on the tools or plant required to operate power 
production than in primitive methods. The 
enormous capacity of modern prime-movers 


enables production to be achieved on a correspond- 
ing scale, but at the same time make the provision 
of the necessary plant quite outside the capacity 
of individuals to provide. Hence arose the 
joint stock company by which the savings of 
large numbers of people could be used in a 
single enterprise. 

In no sphere is there such such a total inversion 
of ideas, in changing from an economics of want 
to an economics of abundance, as in that of interest 
on debts. 

In the first place it would be completely 
mistaken to suppose that there is any physical 
basis for the so-called laws of interest, simple 
and compound. The first law applies when the 
interest is periodically paid, and the second when 
it is not paid but accumulates, itself bearing 
interest. These laws are in origin purely mathe- 
matical. Certain assumptions are made and the 
consequences quantitatively worked out. That 
is all. What exactly these assumptions amount 
to, beyond the agreement of one individual to 
pay another so much a year interest for the use 
of so much principal, it would puzzle anyone 
to say. They are purely arbitrary and conven- 
tional agreements without any necessary physical 
justification at all. Such justification as is offered 
for interest is usually a vague biological rather 
than physical one, along the lines of the increment 
accruing in agriculture, each seed bringing forth 
thirty-, sixty-, or even a hundred-fold. But it is 


perfectly open to anyone now to challenge the 
theoretical basis of interest. In practice, however, 
there is no reason why anyone should himself 
abstain from consuming in order to lend to 
another unless he derives some advantage from 
it. However, as we have seen, unless individuals 
wish to trust their grey-hairs to be supported 
by the benevolence of governments, they are 
bound to try to save in the hey-day of their 
powers. Usually there are many similar reasons, 
such as to provide for the better education of 
their children when they are arriving at maturity, 
and to insure against accidents, which are 
sufficiently compelling, even without the induce- 
ment of increment. The dawning realization of 
this is responsible for many suggested reforms. 
If Increment Looking Forward then Decrement 
looking Backward. A correspondent, Basil 
Paterson of Edinburgh, submitted to the author 
during the writing of this book an interesting 
suggestion that at least indicates how purely 
arbitrary the conventional mathematical treat- 
ment of interest really is. His argument rested 
on some such consideration as this. Though it 
be agreed to pay in one year's time, say, 5 for 
the use of 100 lent now this is not the same as 
agreeing to pay another 5 at the end of the 
second year. Rather the value of the 100 at the 
end of the first year has to be discounted to its 
present value 95, now, so that the second 
years' interest ought to be five per cent of 95 and 


so on. And who shall deny him ? It seems to 
give the money-lender a little of his own medicine. 
He works out that the consequence of this would 
be to reduce the Compound Interest law to the 
same as the present Simple Interest law. For 
the latter, taking the above illustration, and 
expressing the interest as a fraction instead of 
a percentage, the successive yearly interest pay- 
ments would be one twentieth, one twenty-first, 
one twenty-second, one twenty-third, one twenty- 
fourth, and so one, becoming one hundredth 
or one per cent after eighty years. One of the 
applications claimed is in the pawnbroking 
business, where the least rate of interest profitable 
becomes usurious if extended for any length of 
time, and which the above method of estimation 
would tend to correct. 

Paterson's Interest Law Discounting the Principal. 
It is of interest to apply the higher mathematics 
to the foregoing idea, and consider, instead 
of the increment accruing step by step by yearly 
intervals, an infinite number of infinitesimal 
periods, so as to make the process continuous 
instead of being supposed to occur by yearly 
steps. This does not affect the result that the 
Compound Interest law is thus reduced to the 
ordinary Simple Interest law, but we so arrive 
at one very simple result for the law of simple 
interest itself. Under these circumstances, as 
the time is indefinitely increased without limit, 
the total interest accruing becomes nearer and 


nearer to the principal in amount and can never 
exceed it however long the loan lasts. The 
mathematical formula applying to this case is 

iT=- 230-26 [lo glo (i-/)] 
where i is the rate of interest per cent per annum, 
T the time in years, and / the fraction of the 
principal accruing as interest. From this and 


Saving to Debtor 

Years multiplied Total Interest (as compared 
by rate % p. a. (New Law). with Old Law) 

s. d. s. d. 

1 19 ii i 

2 i 19 7 5 

3 2 19 i ii 

4 3 18 5 17 

5 4 17 6 26 

6 5 16 6 36 
8 7 13 9 63 

10 9 10 4 9 8 

15 13 18 7 ii 5 

20 18 2 6 i 17 6 

25 22 2 5 2 17 7 

50 39 6 ii 10 13 i 

100 63 4 5 36 15 7 

184*14 86 2 10 100 o o 

200 86 9 4 113 10 8 

1000 99 19 ii 900 o i 

a table of logarithms the new interest table can 
readily be constructed. In the one above, 
the interest accruing per 100 of principal is 
shown in the middle column, the time in years 
multiplied by the rate of interest per cent per 
annum in the first column, and the saving to the 
debtor by the new method of calculation in the 
last column. 


The above makes it clear that though for low rates 
of interest and short periods there is little difference, 
for high rates and long periods the difference is 
enormous. The originator of the scheme pointed 
out that its obvious objection is that it encourages 
the investor to draw out and re-invest his money 
every year, but that is completely impossible 
with permanent long term and non-redeemable 
loans such as the national debt. If applied to 
these it would probably suffice instead of the 
simple redemption scheme later referred to (p. 1 86). 
An alternative way would be to continue the 
interest payments at the ordinary rate, regarding 
the difference (shown above in the last column) 
as a sinking fund repayment. In this mode of 
reckoning the payments would be made at uniform 
rate as now for a limited time and then stop. 
This time is given under this law as one hundred 
and eighty-four and one-seventh years divided 
by the rate of interest per cent per annum, as 
indicated in the above table. 

GeselVs Ideas of Making Money Itself Depreciate. 
-A much more sweeping proposal is that of the 
money reformer, Silvio Gesell, who would make 
all money depreciate with time, say five per cent 
per annum, or a penny in the pound per month. 
It would only be maintained current as legal 
tender by periodically stamping it like an insurance 
card. If the public would stand this, and they 
seem positively to love this sort of government 
edict, it certainly would have some remarkable 


consequences. It is claimed that it would, as it 
were, shift down the whole scale of interest by 
five per cent bodily, in the sense that where now 
we should have to pay four per cent for a loan, then 
we should get one per cent for taking the money 
off the owner's hands and saving him the five 
per cent deterioration. If so, all borrowing for 
government and municipal public works would 
be done at a one per cent profit rather than at 
a four per cent interest rate. The scheme is 
actually being advocated by one British Chamber 
of Commerce and is likely to prove exceedingly 
popular in municipal, if not government, circles. 
GeselPs original idea was to prevent anyone 
hoarding money, to increase its " velocity of 
circulation ", and compel people who had it to 
spend it quickly. But the possibility at least of 
this effect of changing the basis or datum-line 
from which increment is reckoned, from zero to 
a five per cent decrement, is worth independent 
consideration, as all the other results would 
equally well be secured if money were issued 
nationally as described without making it rot or 

Objections. The view taken in this book is 
that money is a binding contract between the 
owner who has given up for nothing, not even 
for interest payment, the use of goods and services 
to the community and in common justice he 
ought to receive back just as much as he has 
given up. Stamping the money with a five per 


cent per annum tax would bring in a revenue 
to the community sinilar to what it would get 
if, instead of a bank-rate of, say, five per cent on 
the issue, the nation issued the money in exchange 
for national debt securities destroyed, or in lieu 
of this charged five per cent to the existing 
borrowers instead of the banks. This is not to 
deny that the nation could do both, that is to say, 
itself take the profits of the issue now appropriated 
by the banks and then charge a five per cent per 
annum maintenance tax or stamp-duty to keep 
the money current. But there really does seem 
no justification at all for taxing the medium of 
exchange, and though it may be difficult at first 
sight to devise means for dodging the payment, 
it certainly would create a powerful stimulus 
to the inventive mind to try so to do. In this 
respect it seems calculated to produce exactly 
the opposite effect to what is intended. People 
would try to refuse to accept it just as powerfully 
as they would be constrained to spend it, and 
although, admittedly, it might put them to some 
trouble, the inducement to use money as little 
as possible, and to enter into mutual understand- 
ings to this end, would be as great as the induce- 
ment to spend it as soon as they received it. 
Whereas, on the plan here advocated, hoarding 
simply would not matter, for it has the effect, 
as has been shown, of postponing indefinitely 
the payment of taxation, as more money would 
be issued to make up for increase of hoarding 


if it occurred. Also, instead of making money 
still more of a hectic source of anxiety and hurry, 
the plan here favoured would make credit money 
an invaluable social device for freeing men from 
artificial financial and attendant worries and the 
inverted illusions about money fostered by the 
present system. 

The Possibility of Arbitrarily lowering Interest 
Rates. The possibility, not to say desirability, 
of shifting the datum-line from which increment 
is reckoned to one below zero, so as to start with 
an initial decrement, does not seem to be against, 
but rather in keeping with, the, at bottom, purely 
arbitrary character of interest in an age of 
potential abundance. Quite broadly, as in the 
day of scarcity, when the importance of increasing 
production was paramount, the banking system 
in effect shifted the datum-line from nothing to 
five per cent or so above zero by issuing money 
as a debt to themselves, now that the emphasis 
is on increasing consumption there seems nothing 
impracticable in devising means for lowering it 
below zero, by putting a tax or impost upon being 
in possession of it. In the one case, people owing 
it had to pay five per cent per annum to bring it 
into existence and, in the other, people owning 
it have to pay five per cent per annum to prevent 
it going out of existence ! 

The Probable Effect in Increasing Capital 
Indebtedness. But one further comment on this 
aspect of the Gesell scheme may be made. 


Although there seems no reason to doubt it 
would now have some effect at least in lowering 
the general rate of interest it is not so clear what 
the relative effect would be as regards non- 
productive indebtedness (either old debts or 
new ones) and productive capital. At first sight 
it would seem that it ought to lead to rapid 
repayment of existing debts, so far as the terms 
of the bond permitted, by purchase with existing 
money to escape the tax, and their replacement 
by non-interest bearing or even lightly taxed 
debts. But, in the case of productive capital, 
money is merely an intermediary, and productive 
capital yields a revenue of real wealth which 
cannot be so easily redistributed by taxation, as 
the effect of so-called socialistic legislation of 
the last half-century abundantly makes clear. 
It would appear therefore that, the fund available 
for investment being limited, astute people would 
subscribe for productive enterprises rather than 
towards non-productive expenditure, that is for 
" industrials " rather than government and 
municipal bonds. Although this should lead to 
a lowering of the rate of interest on new money 
invested in industry it would be at the expense 
of a corresponding appreciation of the capital 
values as regards existing indebtedness. As 
regards the non-productive class of loans, if not 
redeemable they should probably also appreciate 
in exchange-value, and, to a lesser extent, if 
redeemable. " O ! what a tangled web we weave 


when first we practise to deceive." Is this really 
the sort of monetary policy necessary in, or 
worthy of, a great scientific age ? 

Straightforward Debt Redemption by Taxation. 
The author's plan for reducing the burden of 
debt is quite straightforward. It is to earmark 
the tax levied on what used to be termed 
" unearned income ", or the part derived from 
savings, for the purchase of the investment, 
and the revenue from the part so acquired for 
the same purpose. The effect of this is to make 
all debts terminable by amortization. It is 
convenient to express the time required for 
complete amortization in units of time in which 
the principal returns the interest. That is, the 
unit of time is 100 divided by i, where i is the 
rate of interest per cent per annum twenty 
years for a five per cent, twenty-five years for 
a four per cent investment, and so on. In these 
units, the times for various rates of income-tax 
are as follows : 

Rate of Tax : 6/- $/- 4/- 3/- 2/- i/- in the pound. 
Units of Time: 1-73 1-84 2-01 2-23 2-56 3-29 

As an example, taking the 4$. in the pound rate 
of tax, the time would be 40*2 years for an invest- 
ment yielding five per cent and 50*25 years for 
one yielding four per cent per annum. At this rate 
of tax, about three-fourths of the redemption is 
effected by interest payments on the part already 
redeemed and only one-fourth by taxation. 
In this way the productive capital wealth of 


the nation in the sense defined would automati- 
cally become the property of the nation after 
having returned to the owner interest varying 
from 173 times the principal for a 6s. rate of 
taxation to 3*29 times for a is. rate. It may be 
called compound redemption, in that the interest 
on the part already acquired is not used for 
national expenditure but " saved " to purchase 
the principal. For non-productive capital debts 
of the nature of the national debt, for which 
simple rather than compound redemption would 
be more natural, the time required is of course 
much longer, being, for half-redemption, about 
seventy years for a 4$. tax-rate and a five per 
cent investment. As the quantity of debt 
unredeemed is reduced, the rate of redemption 
is proportionately slower, so that, theoretically, 
it is always approaching but never reaching 
nothing. In the above illustration one per cent 
would be unredeemed after four hundred and 
sixty years. In many respects the suggestion of 
Paterson already discussed is superior for the 
amortization of this class of non-productive 
permanent debt. 

The Nationalization of Capital is National 
" Saving ". The main advantages claimed for 
the scheme are that it would be in accord with the 
physical decrement of accumulated capital wealth, 
and enable obsolete and obsolescent plant to 
be kept up to date by private enterprise. But in 
the future, when the existing debt was cleared 


off, a revenue would accrue to the nation from 
the ownership of the capital which could then 
be used to furnish national dividends to the nation. 
It need not be discussed here further except to 
call attention to its novel feature as compared 
with other so-called political nationalization 
schemes, which in effect do not vest the owner- 
ship of capital in the nation but merely redistribute 
it among individual owners, merely multiplying 
task-masters. This is because the nation is also 
" saving " instead of just spending its revenue 
from taxation. 

It will be asked how the Chancellor of the 
Exchequer is to provide for the National 
Expenditure if so large a part of the taxes is taken 
for Capital Redemption, and the answer is from 
the sources now used to demoralize the community 
by ameliorative legislation. Almost from the 
moment the new monetary system was started, 
unemployment would cease, except in so far as 
the really unemployable were concerned, and 
there would be a great progressive expansion 
in the revenue of real wealth produced, with 
corresponding increase in the total proceeds of 
taxation if the rate remained unchanged. In 
addition, instead of all the capital depreciating 
with old age and new inventions and improve- 
ments being blocked from application by the 
accumulation of these colossal irrepayable debts, 
the proceeds from the redemption would be 
returned to the production system and be available 


for keeping the whole economic organization 
up to date, replacing obsolescent and outworn 
buildings and plant and employing the latest 
and most time-saving methods of production. In 
this the nation as the owner of an ever-increasing 
part of the capital through the redemption 
scheme would benefit no less than the individuals 
who supplied it by abstinence from their own 
consumption in the first instance. 


TS the New or the Old Economics upside Down ? 
-* In this book the critical exposure has been 
attempted of the chief errors of the past. A 
civilization of truly unlimited promise has been 
side-tracked from the broad highway of progress 
and plunged into a morass of bottomless deceit 
and evasion, in which it is now aimlessly flounder- 
ing and struggling, and from which it is doubtful 
whether it will ever again emerge. If it has been 
necessary so much to reinforce the cold impersonal 
language of science by the denunciation of 
fraudulent practices, it is because delays are 
dangerous and these practices ought by now to be 
well-known to all men of good-will anxious to 
avoid another holocaust. 

We began our inquiries by asking the ordinary 
man to reverse his natural way of looking upon 
his own money and to consider how he got it 
(it being nothing for something), rather than 
its subsequent use to him, in which he merely 
gets back what was given up for it. Once 
men will think in that way then money itself 
begins to appear as the opposite of what it is 
supposed to be, which is the going without of 
a vast collection of useful and valuable property 



by the community fully entitled to own it, and 
which any individual is at liberty to own if desired, 
though in fact only by getting another to take his 
place in going without it. 

At first, no doubt, all these ideas appear upside 
down, a merely pedantic and wilful inversion of 
the natural way of looking at the problem. But 
it is safe to say that anyone who has ever really 
started on this road and tried to follow it can never 
go back. Nothing in the whole world can ever 
look quite the same again. Is it the new view 
that is upside down or the old ? Those queues 
of hopeless and miserably nourished unemployed 
which, if stretched out in single rank, shoulder 
to shoulder, would line the motor-road from 
Lands End to John o' Groats and be jammed 
together to get them all in are they a sign of 
poverty or wealth ? Those columns and columns 
of stock-exchange securities that daily sprawl 
over the pages of the morning newspapers 
are they really evidence of national prosperity ? 
The national debt alone, some 8,000 millions, 
or 160 per man, woman, or child, bringing 
in something like a million of interest every 
day to someone, is it debt or wealth ? Every- 
thing depends on the point of view. If we 
would understand national economic problems 
we must drop our conventional ideas altogether 
and turn ourselves right round, just as we had to 
do with money itself in order to see it in its true 



Abundance First, Apportionment Second. Then 
again how utterly inverted appears the ordinary 
mentality derived from the past age of scarcity 
that there is only a limited amount of wealth in 
the world and what anyone gets is at the expense 
of someone else, and all the jealous bickering over 
the share of the conflicting interests in the output, 
rather than a common and loyal co-operation to 
make the output larger, and provide and distribute 
more with less work. As regards any one moment 
of time it is, of course, true that there is only 
so much available for distribution and no more, 
but in the sense intended it is about as true as if 
every shell fired in the War had been regarded 
as one less left to fire, and totally untrue. Wealth 
is a flow, not a store, and just as during the War 
the output of munitions rose steadily the longer 
the War lasted, so in peace the output of the things 
consumed and used in living could, but for the 
monetary stranglehold, be continuously increased 
to any extent desired in reason. As it is, on the 
average, probably not one person in five is doing 
anything whatever to produce or assist others to 
produce what is being consumed, and the whole 
productive work is carried on by a small minority. 
The rest of the gainfully-employed population is 
either engaged in bargaining as to the price and 
trying to sell the product to people with insufficient 
money to buy, or actually deriving a livelihood by 
obstructing and hindering production. So it is 
in the international sphere ; fiscal entanglements 


of every kind are erected to prevent the smooth 
exchange of the abundance of one nation with 
that of another. 

The Attitude of the Public Towards Cost. 
If there is one sphere in which a change of heart 
is called for, it is in the attitude of the public 
towards costs, and their misguided passion for 
cheapness. This attitude is of course induced by 
the artificial scarcity of money, but what does it 
end in ? Far more is being spent nowadays on 
selling things than in making them. Although 
everyone wants to be paid well for his work, and 
price is nothing else but the sum total of the pay- 
ments made from the moment production starts 
until the sale is effected, as soon as people turn 
from earning money to spending it, they all with 
one accord want to beat down the price, and, 
like the bankers, want to get something for nothing. 
They finish up by paying on the average probably 
twice as much as they need do and reduce their 
own earnings to half as much as they might be, 
three-quarters of the cost representing unnecessary 
costs of commercial haggling and bargaining, 
competitive sales organization, and advertising, 
which do not contribute an iota to the value 
received. The cost of distributing the product 
ought, like the cost of producing it, to be exactly 
known and to be brought down to the minimum 
by efficient organization, not raised to the 
maximum by wasteful and unnecessary 
competition. Even more could be done to raise 


the general standard of living, and give all 
a larger income and greater leisure, by deflecting 
into production an increasing proportion of those 
now engaged in distribution and selling, than by 
the full and efficient employment of all existing 
labour and capital. Hours of labour and rates 
of wages and salary are purely traditional. The 
eight-hour day which seemed so outrageous 
a demand to the Victorian taskmasters is already 
considered a maximum rather than a minimum. 
Free the workers from the competition of backward 
and less civilized workers by freeing the exchanges, 
and provide money automatically sufficient to 
distribute at the actual competitive price all the 
goods and services the production system is 
actually turning out, and the whole nation could 
live on a much ampler scale and with far less 
work than now. It is idle to give estimates which 
are but guesses, though a five-fold increase of 
income with much shorter working hours, as 
quoted by some of the technocrats in America, 
seems in Europe to be not unreasonably within 
sight even of people now alive. But it is far better 
to give people sufficient money resources to 
cultivate their own personal lives and tastes 
according to their own choice than to profession- 
alize recreation, education, and culture and make 
them a source of commercial profit. 

Government Interference in Economics not 
Helpful. There are many who may disagree 
with the author's view that, if money were freed 


from its stranglehold on the creative functions 
of society and restored to its proper place as 
a distributory mechanism, and if, by amortization 
or otherwise, the unlimited accumulation of 
communal debt was prevented, and that already 
accumulated reduced, there is not much wrong 
with the productive economic system as such. 
All sorts of fears will no doubt be entertained 
as to the consequences, but in the author's opinion 
none of the problems likely to arise will then be 
difficult to deal with, as and if they occur. An 
economic system is necessarily an equilibrium 
condition integrating the actions of the individuals 
comprising it, and the result cannot help being 
an average of all the efforts exerted by the 
individuals in providing most efficiently and least 
wastefully for their own personal livelihood. 
With a better physical understanding of the 
national aspects, and of the conventions under- 
lying the economics of individuals, less and less 
interference from Government and more and 
more intelligent direction from those within the 
system itself, actively engaged in the work of 
supplying and satisfying the economic needs 
of the community, seem called for. If too many 
people try to " save " the rate of interest will 
fall and make it less advantageous to do so, and 
if saving is insufficient to maintain and increase 
the productive capital, the rate of interest will 
rise to counteract the tendency. In an Age of 
Plenty these matters can safely be left to adjust 


themselves, once the monetary and debt system 
has been put into accord with physical reality. 
It is the creation of money for speculative gambling 
that distorts this truth. 

A Progressive Evolution of Industry. This 
is not to deny the need or importance of a 
progressive evolution of industry from its present 
bondage to ownership, and from the last vestige 
of economic subservience or slavery. To this 
end the plans of the Guild- Socialists are directed. 
The bitter struggles of the past century will 
not have been in vain if thereby they have 
developed among the personnel and rank-and-file 
of labour a loyalty and sense of responsibility 
to themselves which they should be proud to 
devote to the work of the whole community. 
But these further advances all depend on a gradual 
and orderly growth, which, in the first instance, 
can only come about through a rising standard 
of living. This is being held back and frustrated 
by the perpetual strife and sabotage that have 
marked the struggles of the past, and which are 
primarily due to our utterly fraudulent monetary 
system. The same could be said of all the ameliora- 
tive social legishtion of the past century, which 
merely tried to deal with and diminish the 
suffering occasioned by the money system without 
in one single instance intelligently striking at 
the cause. But all these social and political 
problems lie without the proper scope of this 
book, the primary object of which has been to 


expound the legitimate role of money, to deal 
faithfully with the existing system as it has grown 
up, and to show how it is frustrating every effort 
towards bringing about a saner and happier 
state of things. Whatever further social changes 
experience may dictate, no unbiassed inquirer 
into the subject of money to-day can long escape 
the conclusion that, until the system is drastically 
transformed and its mistakes eliminated, there 
can be no hope of peace, honesty, or stability 
again in this world. 

Monetary Reform First. However desirable 
and necessary it may be to overhaul the political, 
social, and economic machinery of the modern 
State to allow scope and freedom for the new 
possibilities of life introduced by modern scientific 
progress to develop, the peculiar difficulties that 
have attended this progress are not due in any 
direct way to its obstruction by old habits 
of thought but by the new and totally false id^as 
concerning money. It is necessary in this respect 
to return to the fundamental basis of money as 
something no private person should be allowed 
to create for himself. All, equally, should have 
to give up for money the equivalent value in goods 
and services before they can obtain it. What we 
have now is not properly speaking a monetary 
system at all, and money to-day, as something 
always being created and destroyed by borrowing 
and repayment, is a phenomenon new in history. 
So also are all the familiar evils of the day new 


m history. They are all consequences of a false 
money system. The continual growth of 
unemployment is an example. The power of 
employment is not given ultimately by possession 
of money but by possession of the physical 
necessities used and consumed by the worker 
in the course of his employment. Instead of 
these being only obtainable by people who have 
themselves given up equivalent goods or services, 
the nation's stock of its means of employment 
is continually being depleted by defalcations 
only different from the petty peculations of the 
counterfeiter and forger of notes on account of 
their universality and colossal extent. Modern 
unemployment, like modern money, is a new 
phenomenon. No person who really understands 
the physical significance of what is going on in 
the economic world to-day, through the arbitrary 
private creation and destruction of money, can 
feel any surprise whatever that the world has 
been brought so nearly to disaster. 

Even a schoolboy can understand the distinction 
between lending to another, that is going without 
oneself, and lending what belongs to someone 
else, so avoiding having to go without oneself. 
Economists still write as though the nation 
existed for the sake of banks, the public being 
adequately compensated by the banks not charging 
their ordinary clients and customers for their 
services in keeping their accounts. But surely 
the banks are hardly the people to be trusted 


to advise as to the economic affairs of a great 
commercial and industrial nation. The ordinary 
man at least will appreciate the importance of 
honesty in the monetary system, though he is 
likely greatly to overestimate the difficulties in 
the way of the nation getting it. 

The Existing System on the Horns of a Dilemma. 
By those fundamentally opposed to any reform, 
which would stabilize the internal price-level 
and prevent the incessant fluctuation in the value 
of money out of which they derive their livelihood 
by some form of peculation, the issue has so far 
been represented as an alternative between fixing 
the internal price-level or fixing the foreign 
exchanges. The real truth is, rather, that these 
interests want the banks to continue to be able 
to create money, for their own and similar uses, 
without having to bother about finding genuine 
lenders. They want a certain predictable initial 
rise of prices, with the exchanges fixed or pegged 
to bring back the value again to par after prices 
have been raised. They want the banks, who 
provide them with money for nothing, to destroy 
it after they have profited by the use of it. But if 
the first were prevented, the question of the 
exchanges would assume very much less 

True, if banks are to continue to be at liberty 
to raise the internal price-level by fictitious 
loans and, if this is not periodically brought 
down again by devious methods adopted to fix 


the exchanges, all our imports will cost us 
proportionately more, just as the value of the home 
money is debased, and our investments abroad 
will thereby be proportionately reduced in value 
both as regards principal and interest. The 
opposite of course applies to the present time. 
The monetary policies adopted to benefit the 
rentier at home operate as much against foreign 
as against home-debtors and are proving a 
powerful disintegrating influence within the 
Empire. This nation has only itself to blame 
if its foreign debtors go bankrupt or find other 
means of evading their artificially inflated burdens 

The common argument in favour of pegging 
the exchanges is that the nation's food, which 
it buys so largely from abroad with the interest 
payment of past investments, will otherwise be 
jeopardized. But as an argument against the nation 
issuing its own money it is ludicrous. It is the 
existing system which is perpetually on the horns 
of a dilemma, and at its wits' end how to monkey 
with the internal price-level without jeopardizing 
foreign investments. Prevent the first and the 
second will not occur. 

The Economic Necessity of Frontiers. Never- 
theless there will still remain very powerful 
interests in favour of fixing the exchanges rather 
than the internal price-level. They will have 
thought it out this way. When the exchanges 
are free, they go of course against the country 


in which goods are the dearer to produce and 
in favour of those in which they are cheaper, 
so preventing the markets of the former from being 
subjected to the competition of the latter. The 
money as it crosses the frontier then adjusts 
itself automatically to the costs of living in the 
new country. If they are lower there the money 
loses in buying power and, if higher, it gains, 
so that it is always able to buy much the same 
wealth, whichever side of the frontier it is. But 
on the ordinary financial and pecuniary principles 
of the rentier and banker this appears wrong, 
and it ought, they think, to be corrected by some 
way of fixing the exchanges. It seems absurd 
that a person in possession of a fixed monetary 
income, crossing a frontier from where goods are 
dear and the standard of living and wages high, 
should be no better off than he was before he 
emigrated to a country where goods are cheap 
and the standard of living and wage-level are low. 
The argument really amounts to this. That 
a person who has saved in one country and has 
a definite income should be able to transfer himself 
to another country and spend his income where 
he can get most for it that he should be able 
to earn it in the highest and spend it in the lowest 
market. Frontiers, which are a protection to 
those who have to earn their living, are a hindrance 
to those who do not. All the propaganda towards 
the unification of the whole world in one brother- 
hood, when they are all still at different stages 


of evolution and standards of living, though no 
doubt arising from falsely idealistic religious 
sentiment, is sedulously fostered by those who 
do not have to earn their living, or, if they do, 
wish to spend what they earn in another country. 
The difference between leaving the exchanges 
free and attempting to stabilize them is that, 
while no impediment is offered to those who wish 
to reside in a foreign country, there is no economic 
advantage to be gained by it. Whereas if the 
exchanges are fixed, then clearly it is quite 
unnecessary to emigrate to get the advantage 
in spending of a lower standard of living else- 
where. It does not matter whether they are fixed 
" automatically " by a gold-standard or, as appears 
to have been also the case in the 1929 U.S.A. 
slump, by arbitrary deflation, the standard of 
wages and living in the more advanced countries 
is thereby depressed to that of the standard 
prevailing in the less advanced countries. 

Free Exchanges Mean Free Trade. With free 
foreign exchanges there would be no need of tariff 
barriers or complicated fiscal agreements, the 
nations would be free to trade for their mutual 
benefit, and there would be no such thing as the 
general standards of living in the more developed 
being endangered by external competition with 
the rest of the world. Genuine lending and 
borrowing between nations would cease to 
be a danger and become unobjectionable if 
internal price-levels were fixed and the exchanges 


freed. In brief, the whole complicated fiscal 
paraphernalia that now hinders goods from crossing 
frontiers could disappear if the monies of different 
countries were only able to exchange at their 
respective purchasing powers each in its own 
country, and if the arbitrary parity ratios 
established when they were all convertible into 
gold were abandoned once for all. The price- 
level in any one country being fixed as described, 
variations in the foreign exchanges would then be 
almost entirely due to variations in the price-levels 
abroad, and this, surely, is as it should be. 

Compromise Hardly Feasible. Many influential 
people, if only because they object to sudden 
changes, will wish to compromise by continuing 
the banking system with such modifications and 
safeguards as the modern philosophy of money 
can suggest. But it is not in the nature of science 
to believe false accountancy to be a matter for 
compromise. Some people must gain to others' 
hurt, and the whole argument in favour of 
compromise is really directed towards ascertaining 
exactly how the injuries can best be concealed 
from the knowledge of the unsuspecting victims. 

Clearly the vital point on which no compromise 
is possible is the aggregate quantity of money, 
which ought always to be publicly known, as 
was recognized for the ancient token money that 
circulated in Athens and Sparta many centuries 
before Christ. The power of increasing or 
decreasing this aggregate quantity of money must 


be wrested from the banking system and vested 
in the central control of the nation. Moreover, 
the last people to trust in deciding whether the 
issue should be increased or decreased are those 
born and brought up in the jargon of the money- 
market. All their cant phrases " speculative 
boom ", " fictitious prosperity ", " over con- 
fidence ", and the like, so glibly swallowed by 
supposed impartial students of money in the past, 
should be now universally recognized as the 
polite way of informing the initiated that the 
standard of living of the working class is rising 
dangerously above subsistence level, and the 
appropriate monkeying with the quantity of money 
is being engineered to bring it down. 



Signs of a New Truth. Our task would 
not be complete if this book failed to convey 
some hint at least to the mind of the reader of 
the signs, at first often slight but cumulative 
and interwoven, by which a scientific investigator 
or pioneer into novel regions of thought knows 
when he is on sure ground, even when everyone 
else may think him mad. This is a philosophic 
question of great interest, for, if we examine the 
history of progress, the direction it has taken 
appears so often a matter of intuition and 
conviction, rather than to depend on anything 
that at the time would have been accepted as 
convincing or logical proof. Yet this is perhaps 
an external or mass judgment of those who, 
consciously or not, accept as proof subsequent 
practical experience rather than fundamental 
theoretical principles. 

One, certainly, of these signs is how what 
appears nothing so much as a jig-saw puzzle of 
disconnected events and conundrums suddenly 
seems to fit together into a picture, to be lost 
again in a haze of uncertainty, but always return- 
ing, each time a little more orderly and definite. 



Something of this must have happened to many 
who, once having started on the road of reversing 
the conventional illusions, induced by the substitu- 
tion of money for wealth, can never turn back 
until they have restored concrete reality and 
physical ideas everywhere to their rightful place, 
and can never again hold the conventional and 
impressionistic beliefs, still prevalent to-day 
as to the cause and cure of the world's unrest. 
There appears a satisfying correspondence between 
the whole nature of the unsolved problem and 
the dawning interpretation of it, such as that 
not one of the maladies afflicting the relations of 
men to-day are due to any real physical 
insufficiency, such as characterized the earlier 
epochs of history. They are due to the exact 
opposite, " over-production, "" glut," competition 
for markets, and the like, which renders the 
continued existence of poverty and destitution 
a physical absurdity. Where Mr. Baldwin asked 
" What is the use of being able to make goods 
if you cannot sell them ? " the new economist 
would say at once " Why dhnnot we sell them ? 
What is money for ? " and so cut at once the 
Gordian knot of the whole tangle. 

Another sign is the projection of the new view 
back into the past, and how, there also, it throws 
light upon what before was mysterious and 
inexplicable. In this connection it is a gratifying 
sign that many modern students of history are 
beginning to realize the important part played 


by monetary causes in the changes of fortune and 
direction that have overtaken nations. They are 
now comprehending that these monetary causes 
give a far truer interpretation of the real ferment 
at work than the personalities and motives of those 
who were apparently the principal actors in the 
drama. In the history of the past century we have 
had occasion to notice how the gold-standard has 
been operating, and how it has been completely 
unable to limit, as it was intended, the effect 
of a false monetary system to each individual 
country, but gradually extending and widening 
the area of disturbance until it now embroils 
the whole world. 

Another sign of the power of a new and true 
idea is its extension from its immediate application 
to throw new light upon cognate problems. Thus 
we have seen that the identical mistake which 
explains the failure of the money system explains 
also the old confusions in the political and 
economic sphere concerning capital, and the 
chronic struggle, as much now as ever in doubt 
as to the issue, between what is termed capitalism 
or individualism and socialism. 

These then are some of the channels through 
which a new idea makes its way into the general 
mind in spite of its being in opposition to inherited 
and stereotyped habits of thought, and it is the 
significant glory of our age that owing to the 
general quickening in the pace of life, to wider 
and more liberal education, not only of the 


formal type, but in the very atmosphere a modern 
citizen breathes, this period of incubation is 
becoming incredibly shortened. So that, whereas 
it took three or four generations, a century ago, 
for anything new in thought to permeate the 
general mind, to-day we see the whole process 
going on before our eyes from year to year. 
Once the fundamental fact is grasped that we are 
living in an age distinguished only by its science 
and by its understanding and control of the 
physical realities of the external world, then, 
surely, we must accept the corollary that anything 
setting itself up against physical reality cannot 
be allowed to continue. Any attempt to order 
the world along a physically impassable road is 
contrary to the motive power behind progress 
and, if persisted in, can only bring disaster. 
In brief, we live in a scientific age, the purpose 
of which is frustrated by the survival of beliefs 
in money, as the practical mechanism of distribu- 
tion, which are the exact opposite of those which 
have made that age possible. The symptoms 
and repercussions are of infinite obscurity and 
complexity, but the remedy is neither obscure 
nor complex. It is as devastatingly simple and 
effective as correcting an error of arithmetic. 
Monetary Reform Begins at Home. The U.S.A. 
Plan. Many people wish to make money reform 
an international question, and have the vague 
idea that money ought to be international. Some 
of the interests in favour of this, those who wish 


to be able to earn on the highest and spend in 
the lowest market, have just been referred to. 
Others believe that until the international banker 
is under control it is idle to attempt to deal with 
the internal monetary system. Many think 
President Roosevelt's policy is really directed 
to a trial of strength with the international mone- 
tary interests before dealing with those nearer 
home. Whatever may be thought of it, it does 
not seem as yet to contain a single clear principle 
which, in the author's view, is essential to any 
true permanent reform. The national expenditure 
on economic reconstruction in America is on 
a scale that will saddle the United States with 
a permanent new debt, involving it in an increase 
of taxation to the extent of something like an 
additional 100 millions a year. 

Now it is quite a mistake to imagine that there 
is likely to be anything at all antagonistic to the 
monetary interests in a policy designed to increase 
national debt, for that, in the end, is the chief 
object and purpose nowadays of war itself. 
However it may be superficially criticized as 
extravagant, it is right in the main line of least 
resistance of the old system. The object of that 
system is the increase of all the forms of national 
debt. The acid test of reform is their redemption 
or amortization out of the revenue. It all would 
have been totally unnecessary, if the American 
nation had taken the only sure step to ultimate 
success from the first, instead of postponing 


it and perhaps never reaching it. The first step 
is to deal with the issue of money itself. For 
the power of both international and internal 
banking alike depend on the ability to keep the 
internal price-level always on the move. Put 
that under statistical national control, by making 
all money national and regulating the aggregate 
amount issued, and free the foreign exchanges, 
and a nation with an honest monetary system 
has nothing to fear from the manipulation of 
the price-level in other countries. But leave 
the money at home dishonest and allow its 
price-level to be varied by creating and 
destroying it as required for speculators, and, 
sooner or later, it will be made the certain 
victim of external attack designed to reduce its 
standard of living to the lowest prevailing else- 

In this respect the United States is certainly 
stronger and better able to protect itself than the 
older and more debt-ridden nations of Europe. 
It may be, as all sensible men must hope, that 
the courageous positive steps taken by the 
President of the United States to defeat the 
artificial paralysis of its economic system by the 
banking system will leave him strong and respected 
enough politically to do something likely to be 
more permanently effective than anything he 
has yet attempted, that he will be able, in fact, 
to give the world a money system based on 
physical reality. But this still appears to be very 


much in doubt. If it is argued that speed was 
the essence of the problem and that quick returns 
were essential owing to the widespread acute 
distress, it is just as quick to issue new money 
correctly as incorrectly, when the principles 
involved are understood. In any case, the nation 
had had to assume provisional control over the 
whole banking system, and under these circum- 
stances, pending complete abolition of the private 
issue of money, the amount in existence could 
have been stabilized, and increased by national 
issues. If this had been done by raising genuine 
loans and putting them back into circulation by 
issuing new money with corresponding remission 
of taxes, the price-level would not have been 
disturbed. On the other hand, if the object 
were deliberately to raise prices, no one can 
pretend there is any difficulty in doing that 
the genuine loans would not to that extent have 
been necessary. The situation from the first 
moment would then have been absolutely under 
national control. 

Synopsis of the Principles of Reform. 
However it is done there can be no question 
what has to be done. Money is a debt which 
cannot be repaid because there exists nothing 
with which to repay it, and capital is a debt 
that cannot be repaid because against it there 
exists things of social use only, that can never 
again be converted into what individuals require 
and consume. With regard to the first, let it 


be issued by and for the whole nation, as and when 
goods appear on the market for use and con- 
sumption without money and which cannot be 
sold without forcing down prices. With regard 
to the second, make all debts redeemable by 
earmarking part of the revenue they yield for 
amortization, and, for non-productive permanent 
debts, calculating the yield to allow for the 
discounting of the future value of the principal 
to its value in the present as well as for the 
increment of that value in the future. Let us 
have, in the first, physical counters instead of 
magical zeros below zero, and in the second, if 
increments looking forwards also decrements 
looking backwards. 

As regards transition stages, fix a price index 
on the cost of the more important expenses of 
an average middle-class household, require the 
banks always to keep pound for pound of national 
money against their current accounts drawable 
by cheque, set up a national advisory statistical 
bureau on an independent scientific basis, and 
reconstitute the mint for the issue of all money. 
Avoid as the plague schemes for nationalizing 
banks. The object is to stop private minting and 
nationalize money itself, not to control legitimate 
account-keeping or other financial institutions. 
In future earmark, on the one hand, the proceeds 
of the issue of money for the relief of the tax- 
payer, and on the other the proceeds of taxation 
on " unearned incomes " for the purchase for 


the nation of the capital from which they are 
derived. These at least cover all that appears 
fundamental and essential as regards the internal 
reform of the system in the most straightforward 
and open manner possible, and with the minimum 
of interference with the nation's economic 

Free the Exchanges. As regards its external 
economic transactions,' both with other nations 
and with the members of its own family, free 
the exchanges and put them also under national 
supervision. Let them find their own level and 
not drag down nations to the level of the lowest. 
Let us forget how many dollars in America, 
francs in France, or marks in Germany used to 
go to the pound under the gold-standard, and 
make sure that just as many do go to the pound 
as will buy the same in the country in question 
as the pound does here. Reduce gold to 
the rank of a commodity merely for convenient 
international settlement and let it be bought and 
sold like any other goods. Then there is no 
advantage or disadvantage in the exchange of 
one country's money for another that does not 
at once correct itself by making it easier to settle 
by goods rather than by exchanging money. 
Then countries can only lend their own goods and 
services and be repaid with those of their debtors. 
Instead of being rivals and enemies in each others' 
markets and setting up tariff barriers to protect 
their own, and all alike the dupes of complicated 


financial operations in which A lends what 
B borrows and C supplies, nations will be 
protected by their exchanges, and at long last 
find peace. 

Tall claims ? Aye ! but the half is not yet said. 
Let but a single nation stand forth armed cap-a- 
pie in the garment of honesty, and it can face 
the world without fear of the chicaneries and 
conspiracies that still serve for the monetary 
systems of other countries. Roosevelt, it would 
seem, does not believe it politically, but never- 
theless it would appear to be scientifically true. 
Reform begins at home. Let the League of Nations 
look to this. To try and reform the whole world 
without first dealing with the evil in our midst 
may be a crusade but it is not practical politics. 
But to gird on the sword and buckler of truth 
would be to make the whole world our ally, though 
all outside were still in the grip of the money- 
power. As Major Douglas has wisely said, in 
the same connection, you do not solve a problem 
by making it larger. 

The Real Universal Dictatorship No doubt 
many will ridicule the idea that such a nursery 
notion as honest counting is, in these days, 
the key to problems which have baffled 
for generations the collective wisdom of the 
world's statesmen and advisers. But what does 
the modern world owe to them ? It is a world 
that has been created by just this type of honesty 
and by the abolition of all pretended miracles, in 


the realm of physical realities, to the limbo of 
superstition and magic. 

It is a curious thought that the earliest descrip- 
tion of the steam-engine in antiquity describes 
its use for the magic opening of the temple doors, 
when the priests lit the fires on the altars, to 
deceive the populace into ascribing to a deity 
what was the work of the engineer. In much the 
same way to-day, the almost boundless fecundity 
of the creative scientific discoveries and inventions 
of the age are being appropriated for the purpose of 
the mysterious opening of doors into the holy of 
holies of the temples of mammon by a hierarchy 
of imposters and humbugs, whom it is the first 
task of a sane civilization to expose and clear out. 

Let us have an end of the pretence that 
economics should not be concerned with morals, 
for the sort of morality that is in question is one 
that economics takes as a matter of course, or 
otherwise there could be no such thing as an 
economic system at all. The public, if not the 
economists, after the experience of the War and 
post-War epoch, are now fully aware of the 
insidious swindling to which the system of 
creating and destroying money has lent itself 
and it should insist on honest money as infinitely 
more important than honest weights and measures. 
The " credit-system ", which was held up to 
reverence last century as a great advance in the 
facilitation of trade and speculation, now appears 
as a quite childish device for reckoning money 


from an ever-varying datum-line below the zero, 
useful no doubt at one time but now coming back 
to roost. 

Thousands of pounds worth of valuable 
property, which took months to make, pass into 
the possession of people, who have not contributed 
a hand's turn to the making by a scratch in 
a bank-ledger behind the doors of some bank- 
manager's sanctum. Millions of hours of work 
go into a shipment of goods, perhaps to the other 
side of the world, and, hi ! presto, the exporter 
is paid for them and given a permit to recoup 
himself from the goods of his own nation before 
those he has sold even leave port. Worse, when 
the foreign goods do arrive to pay for them, the 
money created disappears. So that under the 
cabalistic abracadabra of " bills discounted ", 
" acceptances ", " money at call and short-notice ", 
the co-existence of nations is becoming an 
impossibility, and they, too, must go, in order 
that nothing may hinder the achievement of the 
physically impossible, the counting below the 
level where there is anything to count. 

Let there be no mistake as to what is wrong. 
It is not the bill of exchange in itself nor any of the 
legitimate devices which the commercial world 
have invented to facilitate international trade, 
but all banking tricks that could not be performed 
if the money were made of physical tokens or 
counters, which cannot be made negative in 
number. If this were so, then no one whatever, 


can get money without someone else giving it up, 
except the State which issues the money in the 
first instance. The acid test, like the remedy, 
is really devastatingly simple, but that will not 
stop it being opposed to the last ditch by the 
bankers who, while making all sorts of ridiculous 
claims that they are not continually creating and 
destroying money by their methods, do not want 
such claims put to this simple physical test. 

Is it so absurd to suggest that the whole complex 
of the world's madness could and would be cured 
by replacing the banker by an honest adding 
machine ? That sort of dictatorship already 
exists universally in fact, whatever the pretence, 
and the nation that first recognizes the truth 
will not need to set up any other dictator within 
its realm nor fear aggression or interference 
from without. 

Reculer Pour Mieux Sauter. Thus we have 
traced the origin of the present-day social 
and international unrest, and the frustration 
of the beneficient scientific advances and 
inventions which have put at the service of 
man the primary forces of Nature, to one single 
cause, to debts that from their nature can never 
be repaid ! Two classes have been distinguished. 
The first is the debt of goods and services given 
up when money comes into existence, to replace 
direct exchange by barter and bridge the time- 
interval between production and ultimate use 
or consumption. The second is the capital debt 


of money given up by individuals, to provide 
the community with the goods and services 
required to build up the general productive 
organization, which are consumed in producing 
the plant and accessories requisite before the 
initiation of production. These products are 
of no use to the consumer and by their nature 
can never be distributed to repay the creditors. 

To allay the world's maladies every form of 
trickery, evasion, and postponement has been 
tried in vain and many others are proposed, but 
one remedy remains overlooked, distinguished 
by directness, simplicity, and effectiveness from 
all the palliatives, the ameliorations, and the 
compromises, the blind internecine and inter- 
national antagonisms and conflicts and the weary 
round of social and economic strife. It is the truth. 
Honesty is the best policy, and in no connection 
could the old adage possibly be more obvious 
than in regard to money itself. Let us in this 
respect, as the French say, reculer pour mieux 
sauter. Let us not take a single step forward until 
we have taken first one back. 

Which is it Lawful to Create Wealth or Money ? 
Our political, social, and juridical machinery 
may be outworn and in need of changes of 
thought and practice to give scope to the new 
conditions and modes by which men derive their 
livelihood. Our forms of human association may 
be moribund, our belief in them shaken, and the 
spirit of men in eclipse. But these are not causes 


but consequences. Who dare pretend that it 
is outside the law and constitution of this or any 
country to succeed in lightening the labour of 
living and to enable men to live less like beasts ? 
Or who dare say it is within the law to utter and 
destroy money ? 

The monetary system is not outworn or senile. 
It is novel, upstart, and imperious, defeating 
technological progress by turning it into the 
channels of destruction, and challenging the 
autonomy not of one nation but of all alike, so 
that now the original authorities constituted for 
the preservation of that autonomy needs must 
fawn upon it to rule at all. Hampered by national 
frontiers, nothing can satisfy it till the whole 
world is made safe for banking, that its funda- 
mental insolvency may defy exposure. Under 
the specious guise of a unification of humanity, 
it aims at absolute dictatorship under which none 
shall be allowed to live save by its favour and for 
the advancement of its transcendent whims. 

The British Way. Let us not, as other countries 
have done in the grip of these anti-social innova- 
tions, discard a peculiarly native growth, the free- 
dom of the individual and personal life, or be goaded 
into paroxysms of futile despair under this new 
absolutism. Let us see it for what it is, deriving 
its power from the loan of licences to live, its 
revenues from the tribute that all without 
exception must pay it, and its irresistible sway 
from the consequence, only now dawning on 


a duped world that, its loans being fictitious, 
its pawn-tickets can never afterwards be redeemed. 
Let us go back where others have not dared to 
move, and press forward where they have had 
to go back. Let us not enslave men that pretenders 
may rule, but take back our sovereign powers 
over money in order that men may be free. It 
is a road Britons have trod before. 

The costly system of juridical machinery we 
maintain to prevent such things happening did 
not come into existence or grow in public esteem 
as the hirelings of government, but because of 
yore it was the bulwark of peoples against the 
treachery of governments. Though lying for 
hire be the primrose path to promotion, testing 
the truth is still the end of law. Even as the 
heralds of a new Armageddon are taking wing 
let the truth be tested within or without the 
law. To pretend to hear nothing, to know nothing, 
the organs of public education drugged, the 
strong in a trap and the wise in a fog is that too 
one of the evils of science or the negation of it ? 

Is the issue to be tested in the Courts or on 
the hustings ? Is it necessary to have a majority 
to restore a law that has not been revoked, to 
stop counterfeiting because it has taken every- 
body in ? Is it necessary to break the law to 
vindicate the law, or trust to democratic organiza- 
tions, always officered in advance by the very 
interests they ostensibly oppose ? Is it possible 
to compromise with a lie by inventing new ones 


to cover up the first ? Let us lift back our 
monetary system on to the narrow gauge of 
honesty as the first step to a leap forward on 
the broad gauge of progress. It poisons the very 
air men breathe, rots them for life or fattens 
them for death, and imputes its curse to science. 
The Real Antagonist. The monetary system is 
actually based on the very error to the point 
blank denial of which Western civilization owes 
its greatness. It serves only the convenience of a 
parasitic and upstart plutocracy practising a 
worldly wisdom the exact opposite of that which 
is the foundation of the age. It prefers the dark 
in times when all men seek the light, and is 
sowing the seeds of hatred and war in a world 
weary to death of strife. It is poisoning the wells 
of Western civilization, and science must turn 
from the conquest of Nature to deal with a more 
sinister antagonist, or lose all it has won. 


Clear as crystal waters spring the founts of Truth. 
As clear once sprang the science that unloosed 
The stream of wealth now dammed an4 mounting up 
To sweep away the age that shuns rebirth. 

Virgin springs the fount again, a moment born 
Unfouled by intercourse, a moment God 
To forge the heart-beat of humanity 
And bring belief to being whole and sound. 


1. Wealth, Virtual Wealth, and Debt. F. Soddy. (Allen and 
Unwin.) 1926. New edition with addition, 1933. 6s. 

This contains the original ideas of the Energy Theory of Wealth, 
and the Virtual Wealth Theory of Money, adumbrated in Cartesian 
Economics (Hendersons), 1922, and other pamphlets. 

2. Money versus M an. F. Soddy. (Elkin Mathews and Marrot.) 
1931* 3$- 6J. 

A succinct account of the same. 

Among books most nearly in line with the above points of view 
may be mentioned : 

3. The Principal Cause of Unemployment. Denis W. Maxwell. 
(Williams and Norgate.) 1932. Js. 6d. 

4. Promise to Pay. R. McNair Wilson. (Routledge and Sons.) 
1934. 35. 6d. 

(Both of these deal particularly with international trade, the latter 
claiming, with justice, to make the issue intelligible to anyone over 16.) 

Another recent book, dealing with the situation in various countries, 
is : 

5. The Breakdown of Money : An Historical Explanation. C. 
Hollis. (Sheed and Ward.) 1934. 45. 6d. 

For a moderate statement of the " Social Credit " proposals of 
Major Douglas, containing a bibliography of the literature, see : 

6. This Age of Plenty. C. Marshall Hattersley. (Sir Isaac 
Pitman and Sons.) 1929. 

The following are the first and last books by S. A. Reeve : 

7. Cost of Competition. S. A. Reeve. (New York : McClure, 
Phillips and Co.) 1906. Deals with the waste of effort in com- 
petitive " Commercialism ". 

8. The Natural Laws of Social Convulsion. S. A. Reeve. (New 
York: Dutton and Co.) 1933. Gives the theory of Wars and 
Revolution adopted in this book. 

Silvio Gesell's System and Proposals will be found in : 

9. The Natural Economic Order. Silvio Gesell, translated by 
P. Pye from 6th German edition (Neo-Verlag, Berlin-Frahnau), 1929. 

10. Free Money. J. Henry Biichi. (Search Publishing Co.) 
I933- 5*. 

11. Stamp Scrip. Irving Fisher. (Adelphi Co., New York.) 
X 933' Describes the sudden spread of Gesell's money in the U.S.A., 
and intended as a practical guide to municipalities wishing to adopt 
the new form of currency. 



For information as to Technocracy. 

12. The A. B.C. of Technocracy. Frank Arkright. (Hamish 
Hamilton.) 1933. is. 6d. 

13. What is Technocracy? Allen Raymond. (McGraw Hill 
Book Co.) 1933. 6s. 

14. The Engineers and the Price System. Thor stein Veblen. 1921. 
Reprinted Viking Press, New York, 1934. $1.50. 

15. The Economy of Abundance.* Stewart Chase [Macmillan and 
Co., New York]. 1934. 

The frankest orthodox book on money (from the socialist stand- 
point) is : 

1 6. What Everybody wants to know about Money. G. D. H. Cole 
and Eight Others. (Victor Gollancz, Ltd.) 1933. 55. 

An excellent account of the early history of " banking " and the 
consequences of the Government's attempts to regulate it is : 

17. Industrial Justice through Banking Reform. Henry Meulen. 
(R. J. James, Ltd.) 1917. 

Two books about the present " Slump ": 

18. Why the Crisis? Lord Melchett. (V. Gollancz, Ltd.) 
1931. 35. 6d. 

19. The Truth about the Slump. A. N. Field. P.O. Box 154, 
Nelson, New Zealand. 1932. (Privately printed.) 

Some of the numerous writings of Arthur Kitson, the doyen of 
British Monetary Reformers, may be given : 

20. A Scientific Solution of the Money Question. 1894. 

21. A Corner in Gold. (P. S. King and Son.) 1904. 

22. A Fraudulent Standard. (P. S. King and Son.) 1917. 

23. Unemployment. The Cause and a Remedy. (Cecil Palmer.) 

24. The Bankers? Conspiracy which started the World Crisis. 
(Elliot Stock.) 1933. 25. 6d. 

Lastly a recent study of the doctrines of the New Economics : 

25. The Modern Idolatry. An Analysis of Usury and the 
Pathology of Debt.* Jeffry Mark [Chatto and Windus]. 1934. 

* Published since this book was written.